A bank loan may seem to be a solution but it is difficult to obtain. Even if you manage to get one, you will remain under pressure until you clear off the loan. Moreover, the loan is just a one time solution and as your business grows, your financial needs are going to increase once again bringing about a situation where you will need more funds.
Non recourse factoring in such a situation offers an ideal solution. As you factor your freight invoices, you get access to required funds for paying off your employees, suppliers, taxes and to cover essential recurring expenses like fuel, vehicle maintenance and repair, tire purchasing and many other important things. Non recourse factoring, which is factoring of receivables, principally assumes that your invoices are valuable assets fit for financing. For a small fee, usually between 1.5 and 3% per month, a factoring company, within twenty four hours of your forwarding the invoices to them, advances you up to 97% of the invoice value.
The actual amount depends on the specific terms of the factoring agreement you enter into and eliminates most of your financial worries related to your immediate business expenses while the factor waits to be paid by your client. Most factors break their fee into ten day payments, to make it more attractive. For example, a 3% per month fee would actually be just 1% for every ten days the invoice remains outstanding. Additionally, if your factoring agreement has a non-recourse invoice factoring clause, the factoring company also covers the risk of non-payment in case your client becomes insolvent or closes down the business.
Non recourse factoring is important in business because it a viable financing tool for growing businesses, providing them with a solution to accelerate slow payments and free up cash flow. However, for factoring to work successfully for you, your business must have a commercial or government clientele and provide you with at least a 12 percent or higher profit margin. non recourse factoring can help you where you are forced to turn away orders on account of limited cash flow and also help you to avoid the risk of missing key payments like payroll, suppliers and rent etc due to cash flow problems.