Recourse Factoring : Non Recourse Factoring : Bad Debt Protection
Recourse Factoring excludes bad debt protection. and If the customer fails to pay, The risk remains with you and the the factor will demand repayment of the amount financed against that outstanding debt.
Non Recourse Factoring includes bad debt protection . your factor will be responsible if a credit approved customer fails to pay an outstanding invoice , The amount of the debt. outstanding will be credited to you by the factor, provided the debt is undisputed.
Recourse factoring
In recourse factoring, the factor does not take the bad debt risk. recourse factoring allows the Factor to come back to the Seller for payment. The risk of insolvency does not transfer to the Factor when an invoice is purchased. Even if you refund the advance, you will most likely still have to pay fees and interest.
Since Recourse Factoring offers the least risk to the Factor, this factoring agreement offers the lowest fees, because you are taking the bad debt risk.
Non Recourse Factoring
With Non Recourse factoring the risk of bad debt and non-payment is accepted by the factor. If the customer goes bankrupt or refuses to pay the invoice the Factor cannot come back to the you for reimbursement of outstanding invoices.
The factor takes the responsibility to approach the customer for payment, and the right to take appropriate legal action. Factoring fees are higher. for this method as it is more risky for the factoring company. A factoring company may want to check the credit worthiness of your customers before a factoring package can be agreed
Modified Recourse Factoring
Most factoring companies will only do Recourse and Non Recourse factoring. . Some factors however now offer bespoke agreement called Modified Recourse factoring.When a customer is unable to pay the invoice due to financial difficulties, then a modified recourse factoring package will cover for this by providing account receivables/credit insurance that offers protection to the Seller. If there is any kind of dispute however, the Factor may have to recourse your other receivables.What is Factoring | Factoring Home | UK Factoring | UK Factoring Companies | Invoice Factoring | Invoice Discounting | Factoring Services | Factoring Brokers | Debt Factoring | Export Factoring | Factoring - Recourse & Non-recourse | SME Factoring | Factoring Glossary