The factor is the third party who buys the invoice or financial asset from the seller at a discount. Invoice factoring is a financial transaction involving three parties: the one who sells the receivable (the business owed the financial asset), the debtor (the customer of the seller), and the factor. You will have the peace of mind that whatever happens, your business will still be in good financial health.

Non-recourse factoring can reduce or eliminate the stress that comes from collecting from customers and running a business. Non-recourse factoring allows you to move on to the next order or project and focus on doing what you do best – provide quality products or services to your customer. Since non-recourse factoring transfers the risk of non-payment to a factor, this means you do not have to worry about being paid. Non-recourse factoring can provide a greater amount of money received at the time of invoicing (also instead of waiting up to 90 days to being paid) and the factor assumes all of the credit risks. If your customer fails to pay you will not be required to refund the advance back to the factor. This has many benefits: Debt is Assumed by the FactorĪfter you sell an invoice to a factor and it’s approved, a factor takes on the risk of non-payment. Non-recourse factoring puts all the payment risk with the factor. With standard recourse factoring, if a customer does not pay their invoice, it must be paid back or replaced with another invoice. Non-recourse factoring is another type of invoice factoring where the factoring company assumes the responsibility if the invoice does not get paid. Non-recourse invoice factoring is more expensive than recourse invoice factoring because the factoring company is assuming all the risk for unpaid invoices.įor a working-scenario of both factoring methods please visit, “Recourse and Non-Recourse Factoring”.

If your customer doesn’t pay their invoice due to any credit reason where they do not file bankruptcy, the factor will assume the entire debt, even if it becomes noncollectable.

The factor assumes the entire credit risk.

If your customer doesn’t pay the invoice due to bankruptcy during the agreed amount of time, then you do not have to pay back the advance you received.

You have a liability related to the factored invoice based on the insolvency of your customer.

In non-recourse factoring, there are two options: The benefit of recourse factoring is that the cost is typically lower and more desirable than non-recourse factoring because the factor is not assuming the risk. However, if you regularly submit invoices for funding, the factor will usually offset the debt against other creditworthy invoices. In recourse invoice factoring if the customer doesn’t pay their invoice after an agreed amount of time, you will be responsible to buy back your invoice from the factor.

Factoring fees are higher for this type of financing.

No personal guarantee is required for the contract.

You will most likely have to factor all of your invoices.

There are 3 main ways non-recourse factoring is different from the standard full-recourse factoring. What is the Difference Between Recourse Factoring and Non-Recourse Factoring?

Nonrecourse invoice factoring