![]() We have a full breakdown on recourse and non-recourse factoring, and the pros and cons of both options, but here is the main difference between the two: recourse factoring agreements mean that if the invoice goes unpaid, your business is responsible for recouping the funds and buying back the invoice non-recourse agreements means that the factoring company with assume the loss of any revenue, and you won’t be required to buy anything back. However, if your client ends up not paying their invoice, whether that financial responsibility falls on your company or the factoring company depends on whether you have a recourse or non-recourse agreement. ![]() Invoice factoring works on the assumption that the client will fulfill their invoice within a certain timeframe, generally between 30 and 90 days. Related: Invoice Factoring Rates, Fees & Costs Recourse vs Non-Recourse If your business relies on physical documents or wire transfers, there may be additional fees to accommodate any extra steps taken by the factoring company to handle these processes. Some companies have an initial setup fee, which can be pricey (as much as $2,000), but is a one time charge, while other companies have regular maintenance fees outside of the discount rate. For example, most invoice factoring agreements have some form of early cancellation fee. Some invoice factoring companies roll all fees into their discount rate, but it’s important to double check just what additional fees you may be signing up for. It is possible to negotiate a flat rate with your factoring company if your client has a proven track record of on-time payments, but the overall rate can end up being a bit higher. Most factoring companies use a variable rate structure, with rates raising the longer the invoice is outstanding. These rates are generally between 1% to 5%, though some companies like altLINE advertise rates as low as 0.50%. The discount rate is the cut the invoice takes as payment after the invoice has been filled by your client and the remainder of the invoice is paid to you. This rate can vary between industries, with general B2B businesses having advance rates of 70% to 85%, construction factoring around 80% to 90%, and trucking companies as high as 90% to 97%. The advance rate is how much you receive upfront from the sale of the invoices. You can use our Dollar Cost Calculator to compare proposals from competing factors. The most important rates to keep in mind while shopping for a factoring company are the advance rate and discount rate. Once the client fulfills the invoice, the factoring company then pays the remainder of the invoice to you, minus an agreed-upon finance fee (usually between 1% to 5%). Invoice factoring involves selling your client’s invoice to a factoring customer for an advance rate, or a percentage of the invoice amount upfront (most factoring companies have advance rates between 70% and 95%).
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