Certainly, may entrepreneurs ask this question themselves and the surrounding economic reality gives only one answer – there is no business without risk. Who could say only several months ago that some big companies, including those of WIG 20 would go bankrupt? However, you can still look for the solution which will enable you to considerably limit business risk involving customer solvency. One of these solutions is non-recourse factoring. In practice, ‘no risk’ simply means insured transactions with the acceptance of risk involving insolvency by a factoring company, basing on an insurance policy the factor holds.
Non-recourse factoring is a service concerning an insurance of a trade credit that guarantees payment damages in case of debtor’s long-lasting insolvency or bankruptcy. An insurance company that factor signs a relevant contract with determines a limit for the payer (our customer’s client) up to which it is able to guarantee payment of damages if the payer does not pay in due time or declares its bankruptcy. It means that similarly as in case of sale of receivables, its settlement by the payer is the sole problem of the external company (here: the factor), with the difference that factoring usually covers many transactions within the framework of one contract with a given client or, even the better, with a greater group of our customer’s clients, not only single service or delivery.
The question immediately arises – why a company may want to use a non-resource factoring service? In which situations may it want ‘to get rid of’ the risk and want to pay for it?
The answer is simple: in each situation when there are grounds to expect possible delays in payments or a contract is so big that no payment for it could upset our customer’s business activity, when we commence cooperation with a new client and we have no payment experiences with it or in case of a foreign market when we do not know relevant legal regulations, i.e. in case the payment is going to be made by a foreign client. Naturally, even in case of a recourse factoring contract the majority of factoring companies do not send a request to the customer to pay the money immediately after the maturity date of a corresponding invoice has elapsed, since they first undertake attempts to receive the payment from the client – the so-called soft debt collection or signing a settlement contract concerning payments in instalments and additional security.
To compare, in this context a recourse factoring definitely is a better idea when cooperating with customers we have already known and whom we offer longer payment periods. In such situation, delays may also occur, but there is greater likelihood that they are not so long so as the factor has to make recourse to the customer’s funds.
Published on: 14 November 2016