Explain about Non - recourse factoring in financial management.

Non – recourse factoring is an agreement made between factor and the client in which, there is no absorb for unpaid invoices.

  • Higher fees.
  • Lower liability.
  • Unpaid invoices are not covered.
  • Rate ranges from 3-5 %.

A non – recourse factoring does not offer you protection, if there exists any of the below mentioned conditions −

  • Customer is not satisfied with your service/products.
  • There is delay in payments.
  • There are disputes between invoices and pay.
  • If there are any credit issues or any insolvency, they will make payments.

Benefits of Non- recourse financing are as follows −

  • Transfer of insolvency.
  • Strong capital.
  • Administrative costs decreases.
  • Assessment of risk profile is done by factor.
  • Client reliability is done by factor.

Some advantages of Non – recourse factoring are as follows −

  • Improvement in cash flow.
  • Easy to get.
  • Protects from non-payments invoice.
  • Cost of factoring.
  • Short term funding.

Disadvantages of Non – recourse factoring are as follows −

  • Level of protection.
  • More factoring cost.
  • More conservative.

Updated on: 13-Aug-2020


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