Factoring And How It All Started


Factoring is an important term in the field of freight management. For understanding the non-recourse factoring, it is important to understand little bit of history. Today people have the option of choosing from best factoring services to help them move their goods. As the statistics from http://www.rita.dot.gov/bts/data_and_statistics/by_subject/freight.html says there are many freight management companies for handling your goods. But the way everything started goes back in ages. Here is a little bit of history to help you understand the recourse factoring better.

This started when the trading was beginning long time back. People had to move their goods to improve their sales and the only way to do this was start distributing their goods to new countries. In doing so, they wanted a trustworthy source that can successfully deliver the goods to the new country. Once they unload the goods at the new country, they receive the payment at a future date. During those times, people trusted each other based on the word of mouth of the buyer who would vouch for that merchant. This merchant will also take up any non-payment risks as well. This is done by either making cash payment or by taking possession of the goods.

The way these early merchants conducted the trade introduced the word factoring. As the businesses evolved, the trading and the factoring industry also evolved along with them. The factoring companies slowly not only vouched for the buyers but also for sending the collected amount to the seller. A small amount was negated as the factoring commission. Since the factoring company is taking care of advancing the funds and vouching for the merchant as well, there is no risk involved for the seller and the deal is safe from his end. This method was later known in factoring terms as non-recourse factoring.

For many years, the factoring companies were comfortable doing business with the industries they were comfortable with. Some of these industries are dry goods, apparel, furniture and textiles. The companies continued to collect fee for their expertise in vouching for the trustworthy nature of the customers of their clients. However, things changed over time. New companies entered the factoring world and they did not change their operations much. The factoring company was looked at a financial company more than the merchant. Due to the higher risks involved, very few companies provided the non-recourse factoring service to its customers. a new method called full-recourse factoring came into effect.

Most of the factoring companies today use the non-recourse factoring as a tick for attracting customers. There are many companies that draw up the contracts cleverly so that there are many loopholes which give the advantage to the seller. More often, the client draws up a non-recourse factoring agreement but he is made to allow to buy certain receivables as non-recourse and some as full recourse which is not correct. In any case, the risks associated with non-payment are not transferred to the seller. In case of a dispute, the buyer is in breach of the agreement and any factored invoice will be dated back to the seller itself.