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Factoring de carga has been offered for years, but there are many misconceptions about it, especially among small businesses. Misinformation is common when discussing factoring, so it’s important to understand what factoring is and who it can benefit in small trucking businesses. For example, recourse factoring is one of the most popular types of freight factoring, but there is a lot of misinformation spread about it and what it really is. As a freight company or owner operator, factoring is a useful way to ensure financial stability and consistency. We’re going to dive into the realities of recourse factoring and how it allows businesses to achieve greater financial stability.
¿Qué es el factoring con recurso?
Recourse freight factoring is a factoring style in which the freight company retains responsibility for the debt if invoices are not paid. On the other hand, non-recourse factoring typically allows the factoring company to assume any of that debt and ensure invoices are paid. This is the only difference between recourse and non-recourse factoring in the details; the rest of the process remains the same: the factoring company buys the invoice, and payment is made almost immediately. If an invoice is not paid under a recourse factoring arrangement, it can either be replaced or bought back by your business.
How Recourse Factoring Works
Recourse factoring works the same way that non-recourse factoring works, just with the addition of being responsible for unpaid invoices. Here’s a step-by-step look at how recourse factoring works:
- The freight company delivers the load
- Send the invoice to your client
- Sell the invoice to your factoring company (like TBS Factoring)
- Your factoring company will send you the majority of the invoice amount immediately, usually 80% to 95%
- Your client pays the invoice that was issued to them
- You get the remainder of the invoice once it’s paid
You will be charged a factoring fee and will be responsible for any unpaid invoices from your clients.
Common Misconceptions About Recourse Factoring
Recourse factoring might immediately sound like you’re getting the short end of the stick by still being responsible; however, it is a beneficial business model for some small freight companies and owner-operators. Here’s a look at some of the top common misconceptions about recourse factoring.
Misconception #1: Recourse Factoring is Only for Businesses That Are Struggling
Many businesses think recourse factoring is only for struggling businesses, but that’s not true at all. Factoring isn’t just something to help you when you need cash; it’s a business asset that allows you to have control over your finances and avoid waiting gap periods for payments. Recourse factoring and factoring in general are great ways to achieve financial stability, stay secure when taking on larger invoices, and improve your business cash flow. It’s a financial management tool, not an emergency funding option.
Misconception #2: Recourse Factoring Means You Will Always Buy Back Invoices
Don’t be afraid of the possibility of having to buy back invoices, as this doesn’t happen often. You would have to buy back the invoice if it’s not paid on time, and you cannot replace it. Otherwise, recourse factoring would be the same as any other factoring setup. To avoid paying back unnecessary invoices, be sure to properly screen clients before accepting loads from them, as this will help you avoid working with irresponsible clients.
Misconception #3: Recourse Factoring is Costly in Comparison
If you look at other financial assets for businesses, such as loans or lines of credit, recourse factoring actually is one of the cheapest methods of financial support available for freight companies. Recourse factoring fees may be present, but they are often not comparable to the interest and fees paid on lines of credit and loans, making factoring a smart financial decision. Ultimately, non-recourse factoring is even cheaper than non-recourse factoring because non-recourse factoring can often have extra fees due to the lack of risk for the freight companies.
Misconception #4: Recourse Factoring Hurts Your Business Credit
Factoring is often seen as something that can negatively impact your business credit, but the truth is, factoring doesn’t affect your business credit at all. It doesn’t work the same way as a traditional loan, meaning it doesn’t show up as debt on credit reports. This is a common misconception that arises from misinformation or a lack of understanding of how factoring works. Factoring companies buy each invoice, instead of giving your business a large sum of cash that would need to be paid back regularly.
Misconception #5: You Have to Factor Every Invoice
Factoring is quite flexible, meaning you can choose what invoices you want to sell to your factoring company. Use factoring to your advantage by choosing what invoices to factor, choosing specific clients to factor, or choosing how much or how little you are using the factoring service. You don’t have to factor every single invoice; just factor the invoices that make sense for your business.
Is Recourse Factoring Right for Your Small Business?
If you’re a small business, you might be wondering whether recourse factoring is right for you. It’s important to understand recourse factoring first so you are fully aware of what the process entails and what to expect. If you have reliable customers, are getting consistent invoices, and are looking to scale your business, then recourse factoring might be the right option for you. Recourse factoring is a great way for small businesses to get financial support, without the risk of taking on debt, making it a reliable option for many freight companies.
How TBS Factoring Can Help Your Small Freight Business
If you are a small freight business, we are here to support your journey with financial support in the form of factoring. At TBS Factoring, we have decades of experience in the trucking industry and have worked with various clients to help them achieve greater financial stability and scale their businesses. We offer everything from factoring services and gas cards to admin assistance. Remember, these misconceptions are just that: misconceptions. Educate yourself on factoring and decide if it’s the right decision for your business. Póngase en contacto con us today to chat about what your goals are, what we offer, and how we can help you achieve your growth goals.
