Full-Recourse vs. Non-Recourse Factoring

Sam Permutt, Express Trade Capital

Receivables factoring is a tried-and-true solution for insufficient cash flow in business-to-business sales relationships. It allows vendors to sell large orders to retailers and assign the receivables to a factor, helping to avoid depleted operational funds while outsourcing collections labor and, in many cases, the risk of unpaid invoices.

Lately, we’ve received numerous inquiries about the difference between “full-recourse” and “non-recourse” factoring.

To address these queries, here are five things to know about these different types of factoring:

Full-Recourse factoring means that the vendor, not the factor, bears the risk if the retailer does not pay the invoice.

Non-Recourse factoring means that the factor, not the vendor, absorbs the credit risk. If the retailer goes bankrupt or insolvent – or even refuses to pay without reason – the burden falls to the factor to pay the invoice.

Hybrid recourse/non-recourse factoring means that the factor will provide credit protection for a portion of the invoice.  The amount of risk the factor will take on depends on how much of that invoice the retailer will likely pay.

The risk of normal chargebacks and disputes is not covered in these instances.

The benefit of non-recourse factoring is that the vendor knows that once her invoices are factored she can rest assured that one way or another, she will be paid.

To speak more about non-recourse factoring, please contact us.