Explain about recourse factoring in financial management.

Recourse factoring is an agreement between client and factor in which, client had to buy back unpaid bills receivables from factor. In case of default payers factor can claim their money, agreement will specify in how many days the payment should refund in advance. Whether money will refund or not, we have to still pay interest and fee.

  • Replace with goods invoice with same value as of unpaid invoice.
  • Pay with the help of withheld fees.
  • Pay in instalments.

Uses of recourse factoring are as follows −

  • Creditworthy invoice clients.
  • Need not pay high fees.
  • Access to capital.
  • Access to capital.
  • Regular cash flows.
  • Improves payment flows.
  • Improves competitiveness.

Some of the advantages are given below −

  • Low fees.
  • Higher liability.
  • High advances.
  • Rates around 1-3%.
  • Cover up for unpaid invoices.

Disadvantages are as follows −

  • Case of default.
  • Business income can be sued in case of payment default.
  • Bank accounts can be sued in case of payment default.

Updated on: 13-Aug-2020


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