What happens if an invoice doesn’t pay?
We rarely need to charge back unpaid invoices. We always do our best to help you collect on older invoices, but if an invoice is 90 days outstanding and it doesn’t pay, we’ll charge it back. This doesn’t happen very often. In the instance it does, we’ll always work with you to determine the best way to charge back a 90-day old invoice that hasn’t paid. Working out an unpaid invoice should not cause your company financial hardship, as it isn’t in the best interest for you or for us!
What do we do to prevent this from happening?
We always run credit on a new customer before they are funded to ensure that they’re creditworthy. Once the invoice is past due, we follow up regularly to determine why the invoice is past due, and what we can do to resolve any issues with the invoice.
What if we charge back a 90-day old invoice, and it ends up paying after the 90 days?
If we need to charge back an invoice, we encourage you to continue efforts to collect on the invoice. If the facility does end up paying the invoice, we’ll pay that amount back out to you in full. The benefit of charging it back at 90 days is that it immediately stops the fees. When the invoice is eventually paid, you’ll receive the full payment.
Recourse vs. Non-Recourse Factoring
Non-recourse factoring means the factoring company assumes most of the risk of non-payment by your customers. Non-recourse does not necessarily protect your company from all risk. There are usually stipulations associated with non-recourse factoring, and the situations in which you are not responsible for customer non-payment are very specific.
For example, many factoring companies offer non-recourse that only applies if a debtor declares bankruptcy. In other instances, you could still be responsible for non-payment. For example, if the invoice is disputed, you could still be responsible for repayment to the factor. You really need to read the fine print in your funding agreement. Because non-recourse agreements typically have a higher factoring rate (sometimes by a full percentage), it’s important to determine whether the higher rate is worth the cost.
Non-recourse factoring contracts may have:
- conservative credit limits for your facilities, potentially limiting your ability to grow
- higher factoring fees when compared with a recourse factoring agreement
- a more intrusive relationship by the factoring company with your customers
- higher required monthly minimum fees (aka “volume commitments”) by the factoring company
We understand that recourse vs. non-recourse factoring can be confusing, so we’re here to answer any questions you have. Recourse factoring is the most common form of factoring, as it provides the best option for covering payroll each week and ensures the most flexibility to help you grow your business.