Non-recourse factoring is a special factoring model providing special benefits.
Factoring and Trade Credit Insurance
We recognized the significance of factoring as a means of financing liquidity and used our resources and expertise to respond adequately.
With Finspot, the first digital factoring platform in Serbia, we went through the entire process of assessing the creditworthiness of clients. This ability proved adequate, and now Finspot’s claims are insured, as well as investors’ stakes and clients’ business. This also allows Finspot to offer its users non-recourse factoring.
Learn more about how we ensure accounts receivable collection in sectors with different risk profiles.
Factoring, also known as accounts receivable financing, is a financial tool that gained importance in the years of intensive development of global trade, but also the growth of trade dynamics in local markets worldwide. This tool provides businesses with the means to improve cash flow and access immediate funds by selling accounts receivable to a third party, a company called a “factor” in the factoring process.
Factoring is a suitable means of financing liquidity for a wide range of business sectors and activities, including manufacturing, distribution, trade, transportation, etc. It is suitable for businesses of all sizes, from small and medium to large corporations. A key prerequisite for a company to be able to use this instrument is to operate with a client base with solid creditworthiness and solvency. If this condition is met, the company can, by selling its receivables to a factor, obtain cash within a shorter period than the original payment term, thereby shortening its turnover period and improving liquidity and cash flow indicators.
Advantages of Factoring
It allows you to focus on core business and increase your profits
One of the primary reasons for the growing demand for factoring is its ability to improve cash flow. Many businesses, especially small and medium-sized businesses, often face cash flow challenges due to late payments from customers.
By selling their accounts receivable to a factor, companies can convert their outstanding invoices into immediate cash, which allows them to obtain additional rebates from suppliers by purchasing goods in advance, gaining a new customer and/or expanding cooperation with existing customers.
Quick access to money without additional borrowing
You often have to wait several months for bank loans to be processed and approved, so you may not have enough money to take advantage of all business opportunities.
Factoring offers a faster way to access funds, often within 24 hours, making it particularly useful for businesses that need quick capital. At the same time, it is presented separately in your books, because you simply convert receivables into cash on the account, and therefore it is not entered in your consumer credit report.
Credit risk mitigation
Another significant benefit of factoring is the transfer of credit risk to the factor. When companies sell their accounts receivable to a factor in non-recourse factoring, they also transfer responsibility for collection from customers.
This can be especially valuable for businesses operating in industries with high credit risk or with customers who have a history of late payments or are prone to default. Accounts receivable financing allows companies to focus on their business and leave credit management to the factor.Flexibility and scalability
Factoring offers businesses flexibility and scalability in managing their cash flow needs. Unlike traditional bank loans or lines of credit, factoring does not require companies to provide collateral or undergo a long approval process.
As the business grows, so does the number of invoices, and the amount of financing available to the company can increase. This flexibility allows companies to adapt to changing financial needs without being limited to traditional financing options. This is especially important for businesses with pronounced seasonality.
Factoring is ideal for new and start-up companies
Accounts receivable financing is also available to companies with limited business history, which generally have difficulty securing traditional loans.
To get financing through factoring, you only need to have a creditworthy customer and an approved invoice.
Difference between factoring and non-recourse factoring
The dominant type of AR financing on our market is factoring with recourse, whereby, if the factor cannot collect receivables from the customer, they activate recourse, that is, the seller is obliged to take over the outstanding receivables and make a payment to the factor. On the other hand, non-recourse factoring implies that the seller is not obliged to fulfil this.
It is achieved through trade credit insurance, designed specifically for factors. A factor with trade credit insurance goes through the process of assessing the creditworthiness of its clients and, when it is established that they are adequate in this regard, it can count on trade credit insurance. EuroSolutions implemented this trade credit insurance model for Finspot, the first digital factoring platform in Serbia, which, thanks to that, now offers non-recourse factoring too. See more about trade credit insurance, process and benefits here or send us a request to create a solution for trade finance insurance tailored just for you.
Why should you insure accounts receivable with EuroSolutions?
EuroSolutions Ltd. is a partner with the organisation ICBA (International Credit Brokers Alliance), which allows us direct access to the global insurance market and the lead insurers in this area, such as:
We do not approach local insurance companies; instead, we use only direct connections with global credit insurers and their headquarters.
We provide better conditions for our clients. We achieve more favourable premium rates and the percentage of fulfilment of required credit limits for our clients’ customers.