Recourse Debt Factoring

Debt Factoring refers to the sale of receivables from a business to a specialized finance company known as a factor. The sale takes place at an agreed discount and once completed the factor must collect receivables from the customers directly.

Factoring agreements can either be recourse factoring agreements or non-recourse factoring agreements.

With recourse debt factoring, the factor does not assume the risk of bad debts. A factoring agreement will stipulate when receivables are considered uncollectible and the procedure for repaying the factor.

Recourse factoring carries less of a discount than non-recourse factoring since the business retains the risk of bad debts.