If businesses want to stabilize cash flow and have more resources available for manufacturing, advertising, R&D or other important business areas, non-recourse factoring might be a service that interests them. After signing an agreement with the factor, they can hand over all present and future accounts receivable and receive payment directly from the factor almost immediately. The service costs a fee which is deduced from the total amount payable. In return, the factor gives the business a whole lot of breathing room for commercial activities. But managing factoring is difficult and takes a lot of administrative resources. In this article, we’ll see how you can optimize non-recourse loan/factoring management!
First off evaluate your clientele
Do a thorough analysis of your potential clientele and the payment habits of their clients. Non-recourse factoring or any factoring, in general (the same applies for all non-recourse loans) only works when you either give out credit to your clients or have slightly longer deadlines for payments (30-100 days).
If your clientele has a poor credit rating, or have clients themselves with poor credit rating, the non-recourse loan isn’t a mutually beneficial choice. Unless the client agrees with which would be significantly higher. But, more often than not, for businesses that have bad credit, factoring could be rejected altogether.
Seems like a no-brainer, but then again remember that you should be wary of the competition and your initial costs for opening and managing factoring services. Most clients won’t get offers from other companies and will stick with you due to recommendations or because they’re an existing client. In essence, they’re all looking for the lowest fees, but other conditions and terms of the contract are still important. It’s quite crucial to weigh the differences and potential benefits of full factoring for both sides.
Have you evaluated the potential risks?
A lot of businesses tend to forget that non-recourse factoring isn’t for every business. The criteria which we mentioned in the first two paragraphs is crucial if a non-recourse loan were to be beneficial for all parties. Some times non-recourse loans can’t be offered and clients can only expect to get recourse loans but that’s part of the process.
It’s easier to cope with the challenges when you have professional software
Doing full factoring services without dedicated non-recourse factoring software is definitely an uphill battle. Programs like SOFT4 Factoring have a user-friendly interface, which you’ll be familiar with, if you’ve used Microsoft Office.
In addition, the software simplifies and automates a lot of mundane day-to-day tasks which don’t create any additional value. Furthermore, there are automated calculation functions for interest on debt balance, overdue fines, released reserves, etc. Also, the software helps automate the monitoring and creation of factoring agreements. Upload documents, create a contract and change its status within the application to make sure everything is up to date. Application can be accessed by numerous staff members to ensure smooth and efficient exchange of documents and information between departments.