What characterizes Factoring in relation to Recourse or Non-Recourse Factoring is what happens when the Buyer does not pay the Invoice that has been assigned to the Funder/Financier (Bank or Factoring Company).
If Factoring is set to Recourse Factoring, that means there is Recourse onto the Supplier. Therefore, if the Factoring Facility has been set to Recourse, in case of non-payment by the Buyer, the Supplier must return to the Financier the amounts that have been advanced.
This type of Factoring has fewer advantages for the Supplier. However, there are several reasons that may make this mode make sense for you:
- Most generalist banks perform Recourse Factoring. That said, if you want to have a banking relationship with such banks, you will probably have to do Factoring With Resource.
- In Recourse Factoring the credit risk is more concentrated in the Supplier company. That said, your company may be able to get advances on receivables from High Risk Buyers. For if the Buyer does not pay, it is your company that must return the advanced amounts to the Funder.
Recourse Factoring, because it does not include Credit Risk coverage, may have a lower cost than Non-Recourse Factoring. As it has fewer services, it has a lower cost.
As Recourse Factoring does not include Credit Risk coverage, it may be that the advance amounts of a particular Buyer are not limited to a maximum amount. Thus, whether it sells too much or too little, or if there is too much or too little time for the Buyer to pay your Company, the Lender will always advance the amounts you invoice.
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Unlike leasing and renting services, which are used by almost every company, this myth has accompanied the Factoring service. In fact, all types of companies use Factoring, from micro companies to the largest companies around.
Know what other types of factoring exist.
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