Recourse vs non-recourse factoring
Recourse factoring means you cover the factor if your customer never pays. Non-recourse factoring shifts certain non-payment risk to the factor, usually for a higher fee.
The difference is who absorbs a bad debt. With recourse factoring, if a customer fails to pay an invoice you sold, you buy it back or replace it. It is the more common and lower-cost option.
With non-recourse factoring, the factor takes on specified credit risk, so you are protected if a customer goes insolvent. That protection is narrower than it sounds. It usually applies only to defined events, not every reason an invoice goes unpaid, and it costs more, so read the contract for exactly what is covered.
Common questions
Which is cheaper, recourse or non-recourse factoring?
Recourse factoring is usually cheaper because you keep the risk of non-payment. Non-recourse costs more for the added protection.
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