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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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