If you plan on selling invoices it is important to know whether the funding proposal is for “recourse” or “non-recourse” factoring. Here is an overview of both methods.
A Look at Non-Recourse Factoring
Just like it sounds, there is no recourse for unpaid receivables against the client. The client selling invoices is not financially obligated to the factoring company in the event an approved and funded invoice is not paid by the customer.
To protect their investment, the factoring company will check the credit strength of account debtors and verify invoices with customers. They will also want to handle the payment collection and accounts receivable management.
Understandably, this is the most popular type of invoice financing with “non-recourse” factoring making up over 2/3rds of all transactions.