What happens if a debtor does not pay when using a factoring facility?
Invoices are factored for up to 120 days from their creation date. Typically a factoring company will require that the debt is repurchased at this point. The invoice becomes "disapproved" and any funds made available for that invoice will be withdrawn.
Usually new invoices will make up any shortfall that may be created a result and the factoring facility continues to operate smoothly.
If a large debtor is does not pay however, a significant cash flow crisis may occur. To cater for this Working Capital Solutions has created an insured factoring product called non-recourse factoring.
Under a non-recourse facility all credit risk is removed and if a large debtor does not pay the insurance company will pay the invoice on it's behalf. Working Capital Solutions does not pass on the cost of insurance and provides it to their Clients as a value added service.
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