What Are The Different Types Of Factoring?


There are various types of factoring services available, and most of the companies such as Texas invoice factoring companies provide these services. Let us discuss the same:-

Recourse Factoring

This is the most simple type of factoring. For any reason, if a client does not pay for the factored invoices, the company involved is accountable to make the factor whole. Here, you must repay the factor for the advance received by you. Moreover, you are liable to pay the factoring discount owed on the prescribed date. No debt protection is offered under this type. Make sure to factor invoices to the clients who will consistently pay for the invoices. The repayments are made from rebates owed by you. The factor may keep new invoices, provided the unpaid ones are replaced with cash payments.

Non-Recourse Factoring

If a client does not pay for the invoices due to bankruptcy or any other reason, the factor does not need to be made complete, since the factoring is done without recourse. If there is any dispute with the service offered by you, the client won’t pay, still you are still constrained to make factor whole. In this type, there is recourse with a non-recourse factor. A factor providing non-recourse factoring may acquire indemnity on the receivables purchased. Furthermore, the clients are underwritten with more strict requirements. Consequently, some of the clients who get acknowledged for recourse factoring could be refused non-recourse factoring.

Non-Notification Factoring

In this system, the client is not notified of the understanding stuck between you and the factor. Since more work is involved for the factor to maintain the association confidential, a non-notification association costs more than full notification factoring. There could be some companies utilizing a factor for the first time may choose to factor on a non-notification basis. On the other hand, some companies find that it is not essential as most of their clients are familiar with the practice. The clients are not bothered about whether the invoices are factored or not.

Invoice Discounting

In this system, you do not trade the invoices but utilize them as security for a loan, generally in bulk rather than preferred invoices or clients. An approved percent of the invoices’ face value is offered, and as the invoices are repaid by the clients. Also the factor offering the invoice discounting is repaid. The agreement is secret, similarly like the non-notification factoring.

Maturity Factoring

In this type, the factor takes over all credit and collection functions, and receivables insurance are made available to the business owner. On the other hand, the advance is not provided in anticipation of the date the invoices are due to be paid. The payment to the seller is usually done on a monthly basis or on the due date of the invoices factored. The factor may award the client’s customer an expansion of payment terms, and if accepted the customer is equally charged for the same. The maturity factoring is not generally practiced, though some factors offer it.

When you are looking for the different types of factoring offered by companies, choose the best Texas invoice factoring companies to do the needful for you.