Running a business is no easy task. Entrepreneurs do not always collect invoices when they need to, which impacts their ability to meet the many payments they have to make. And it is not unusual for there to be times when they do not have the necessary liquidity, especially when they are in a period of growth. To offer a way out of this situation, alternatives such as factoring with recourse have arisen.
Resorting to banks to request a loan is not usually a preferred option for companies, as they would increase their debt. In fact, in the past, many banks denied credit to emerging projects, as they only paid attention to their economic aspects. In this way, all sustainable initiatives that did not pursue mere profitability, but sought to bring about a change in society or the environment, were excluded from the system.
On the other hand, the loss of credibility of banks, resulting from the great financial crisis of 2008, has made many savers reluctant to turn to them to invest their capital. Nevertheless, they still wish to participate in the economy.
In recent years, innovative financing mechanisms have been emerging to meet the needs of both groups. Thus, sustainable businesses could access resources and stay true to their values, and individuals could profit while doing their part to build a better world.
These methods, which are gaining more followers daily, are part of ethical investment. Factoring, and more specifically recourse factoring, is one of them.
The irruption of factoring
Factoring is one of the leading exponents of the era of alternative financing. Through this system, a business in need of liquidity at a specific moment assigns an invoice to an entity, which pays it in advance in exchange for access to its collection rights. It is, in short, a method for collecting debts in advance.
In any factoring operation, there are three actors involved:
- The debtor is the customer who owes a certain sum of money to the company since he has enjoyed or will enjoy its services. However, payment is still pending. In most cases, if factoring is formalized, the debtor is notified.
- The assignor is a cash-strapped company that engages the factoring services. It needs the money immediately, so it assigns its invoices to the entity in exchange for collecting them in advance, thus having resources available.
- The assignee or factor is the entity that takes charge of the invoice and advances the money to the company. When the debtor pays the amount, it will receive it. It does not do this altruistically but makes a profit from the interest agreed upon by the assignor and the assignee.
Factoring appeals to all types of organizations, and its popularity is steadily expanding. Studies carried out by the Spanish Factoring Association show this. In 2021, a growth of 11.56% was recorded, with figures over 98 billion euros. And future expectations are even more optimistic.
Having noted society's growing interest in factoring, traditional banking firms are joining this trend. To capture this customer segment, they have diversified their range of financial products and now offer the possibility of factoring services.
There is also a kind of subcategory called crowdfactoring. In this modality, the people in charge of invoice financing are not entities. They are individuals. Individual savers who wish to invest their capital in transformative projects while receiving an economic benefit. Crowdfactoring, therefore, is a real lever of the real economy, bringing finance closer to all kinds of people.
What is recourse factoring?
There are two main types of factoring: recourse factoring and non-recourse factoring. The mechanics are identical: the only difference between the two is who bears the risk of non-payment if the debtor defaults and fails to pay the invoice.
Suppose the assignor and the assignee opt for factoring with recourse. In that case, the business is responsible for the debtor's insolvency, and once the due date has passed, it will have to pay the investor the amount advanced by the latter.
On the other hand, if non-recourse factoring is used, the assignee will assume the liability and will not have the right to require the assignor to transfer the debt.
Recourse factoring has two major advantages. First, it has a much greater ability to attract investors, as it involves a lower level of risk for them. Consequently, the project seeking resources will more likely find a saver or entity to advance the invoices.
On the other hand, the interest rates for factoring with recourse are significantly lower than for factoring without recourse, reducing the business's transaction costs. In addition, as the investor is not responsible for possible insolvency, he will not be able to demand a high-interest rate, and the amount received by the company will be higher.
The market was full of cash-strapped companies looking for resources and savers who wanted to profit by investing their capital in sustainable projects. But there was no link between the two parties.
This is where players like Inversa come into play, dedicated to the online financing invoices to promote the real economy. This platform also incorporates an ethical component of great value: it only includes projects that positively impact their environment.
The solution proposed by Inversa offers very high guarantees of transparency, security and agility. And it hides a great attraction for savers, who collect interest in advance and can recover their investment in less than 180 days.
Its operation is extremely simple: companies register on the platform and send their invoices, which experts audit. Inversa uses third parties, who analyze their credit rating and give them a cost and profitability. Once all the initiatives capable of meeting their debts have been selected, they are published on the platform to give them visibility among investors, who select those that best match their values.
The company does not receive the money in full; commissions and interest are subtracted. Furthermore, 10% of the total amount is retained and will only be released when the debtor pays the amount due, and the saver recovers his capital.
The work of platforms such as Inversa allows transformative initiatives to receive the definitive push to take off and generate wealth at an economic, social and environmental level.