What is the difference between “recourse” and “non-recourse” factored invoices?
‘Recourse’ or ‘non-recourse’ factoring – it’s all about credit cover.
Recourse factoring – In case of debtor’s insolvency (a debtor does not pay), a factoring company will have recourse to the client to get back the money advanced to him. In the other words, the recourse means – getting the money back from the client, not the debtor. The recourse can be made after invoice maturity or at any other date depending on the factoring contract conditions. In recourse factoring the risk lies with the client. If the debtor does not pay, he is supposed to pay the advanced amount back.
In non-recourse factoring the risk lies with the factoring company. The factor is responsible for the collection of outstanding debts. If the debtor does not pay, the factoring company can’t have the recourse to the client. The factor will have to write off the A/R as uncollectable.
Invoices factored on a “recourse” basis means that the client is ultimately responsible for payment whether or not the customer pays. Factoring invoices on a “non-recourse” basis means that the factoring company assumes the credit risk of the customer (usually at higher rates), thereby protecting the client from possible credit loss. Mazon purchases almost all invoices on a recourse basis, but will work with clients on a non-recourse basis under specific conditions.
