A guide to recourse factoring

Title A Guide to Recourse Factoring

Recourse factoring falls under the umbrella term of invoice financing. In this blog we will talk you through its key benefits, including credit control and sales ledger management.

For businesses, maintaining a healthy cash flow is paramount to sustainable growth. However, extended customer payment terms can create a significant cash flow gap, hindering the ability to seize opportunities and meet financial obligations. Recourse factoring is a valuable solution, enabling businesses to convert unpaid invoices: into working capital.

Addressing the Challenge of Slow Payments

Many businesses face the reality of long invoicing terms. Whilst the work has already been carried out, the invoices are not due to be settled for weeks, or even months, leading to a cash flow crunch. This can disrupt operations, hinder growth initiatives, and create a domino effect of financial strain.

Recourse factoring offers a strategic approach to overcoming this challenge. By selling the outstanding invoices to an invoice finance provider (factor), the business receives an upfront advance (typically 80% invoice value). This cash injection bridges the gap caused by invoice terms, enabling the business to operate seamlessly.

Advantages of Recourse Factoring

Improved cash flow management: Recourse factoring streamlines cash flow cycle, by removing the waiting period to receive customer payments. This frees up valuable resources and allows the business to effectively manage inventory, invest in strategic initiatives, and fulfil payroll obligations on time.

Focus on core business activities: Recourse factoring eliminates the time and effort spent on managing credit control. This allows resources to be focused on core business activities such as strategic planning, customer relationship management, and product development – areas crucial for sustainable growth.

Creditworthiness: Traditional financing options often require high credit scores, or come at a higher price. Recourse factoring offers a more accessible alternative. Even if your credit history is not pristine, the business can still benefit from recourse factoring to unlock working capital. Invoice finance providers look at the creditworthiness of the business’s clients.

Recourse Factoring Process

The recourse factoring process is designed for efficiency:

  1. Invoice Sale: You partner with a factoring company and sell your invoices at an agreed-upon fee structure. This fee structure represents the factoring fee for converting your invoice into earlier accessible cash.
  2. Invoice Issuance: You complete a project and send the invoice to your customer as per your standard business practices.
  3. Upfront Advance: The factoring company provides you with a percentage of the invoice value upfront (minus the factoring fee).
  4. Credit Control: The factor will chase the debt in on your behalf.
  5. Customer Payment: The customer settles the invoice with the factoring company, not you. This eliminates the businesses involvement in credit control process.
  6. Remaining Balance: Once your customer pays the invoice in full, the factoring company remits the remaining balance to you, minus the factoring fee.

Is Recourse Factoring the Right Choice for Your Business?

If your business struggles with credit control management and cash flow, recourse factoring can be a strategic solution. It injects working capital into your operations, allowing you to focus on your business and eliminate the time-consuming task of sales ledger management. By optimising your cash flow cycle, recourse factoring can propel your business towards sustainable growth.

Recourse factoring is for businesses of all sizes, and includes facilities for funding for business start ups.

Empower Your Business Growth with Partnership Invoice Finance

Contact Partnership Invoice Finance today to explore how recourse factoring can transform your business. Our team of financial experts is committed to understanding your unique needs and tailoring a factoring solution that fuels your business growth.

Together we hold over 120 years of expertise within financial services. Our facilities range from £20,000 to £1 Million, with financial solutions for businesses of all sizes and set ups.

We welcome you to learn more by contacting a member of our team.