Recourse factoring is a term that describes a subset of commercial finance that can be called factoring or invoice discounting.

The term, recourse, relates to the ability of the factor to have recourse back to the seller of the receivable if the account debtor, or customer, of the seller is unable to pay the outstanding invoice because of financial inability.

A simple example will make it more clear.

Lets assume that a company that we will call, ABC Wholesaler, enters into an agreement with a factoring firm that we will call, DEF Factor, whereby ABC sells its invoice due from HIG Retailer in exchange for cash from DEF Factor today.  The invoice sold has a face value of $10,000, the amount paid by the factor for the invoice is $8,000.  HIG Retailer then files for bankruptcy.  Under a recourse factoring arrangement DEF Factor can sell the invoice back to ABC Wholesaler and ABC Wholesaler still has an obligation to DEF Factor for the $8,000 dollar advance.

If this were a non-recourse factoring program ABC Wholesaler would not be obligated to repay the $8,000 to DEF Factor.

From the above description you would think that everyone would want a non-recourse program.  That would be true if the factoring company would purchase all the receivables, but the fact of the matter is that a factoring company will only purchase, on a non-recourse basis, invoices that are payable by companies that are extremely credit worthy.  In addition, the non-recourse factor would want to be paid a premium for the risk of non-payment they were accepting.

The most important thing to remember when discussing recourse factoring vs. non-recourse factoring is that in a non-recourse transaction the factoring company is only accepting the financial risk of the customer. They are not taking commercial dispute risk.  If the customer doesn't pay for any reason other than financial inability the factoring company will have recourse back to its client.

Fast A/R funding is a recourse factoring company.  We view our mission as providing working capital to our clients as quickly as possible.  Our clients are not typically concerned with the financial ability to pay of their customers and if they are they can always buy credit insurance from one of the global providers.

For more information about Fast A/R Funding and our recourse factoring product please click the button below.