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Q: What happens if a customer doesn’t pay the invoice?
A: This depends on whether a company entered into a nonrecourse or recourse agreement with the factor. In a nonrecourse agreement, factors will absorb the credit-related loss. With a recourse agreement, a company will be required to reimburse the factor either by having the invoice deducted from the advance or replacing it with another, collectable invoice.
Q: How can a business be certain that a factoring company and its affiliate will treat its customers well?
A: The last thing a factor wants to do is cause businesses to lose customers. Factoring companies are not collection agencies. Maintaining customers’ goodwill and confidence is of utmost importance to factors. Many companies are aware that factoring is a common source of financing and know that the quality of a business’s service will not be hampered by its decision to factor.
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Quick and easy financing is one trademark of factoring. Today, many companies have some cash-flow concerns. Factoring can free a business from the endless cycle of invoicing and waiting to collect outstanding payments and make cash flow more predictable.
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