Recourse Factoring

Recourse Factoring

What is Recourse Factoring

In recourse factoring, the factor does not risk bad debts.  Put another way, the factor will be able to reclaim their money from you if the customer does not pay.  The factoring agreement will specify how many days after the due date for payment you must refund the advance.

Whether you refund the advance or not, you will still have to pay the fee and interest.  See invoice discounting and debt factoring basics.

Recourse factoring is cheaper than non-recourse factoring and may have fewer requirements concerning your customers and your systems.  This is because you are taking the bad debt risk.  For example:

• The factoring agreement requires payment to be made in three months.  It also states that 80 per cent of each invoice will be advanced
• On 30 April an invoice for £10,000 is issued and the factor advances £8,000.
• It is down to you to pursue the customer for payment after the three-month period as you have taken on responsibility for the debt.  The factor will, as part of their sales ledger management, chase the outstanding payment until the due date for repayment.  The factor will not have a claim against your customer and it will be up to you to take measures to recoup the outstanding debt.
• On 31 July, regardless of whether you have received payment from the customer or not, £8,000 must be repaid to the factor and you must also pay the fee and interest.