How is factoring without recourse different from factoring with recourse?
Understand the Problem
The question compares two types of factoring, specifically focusing on the differences between factoring without recourse and factoring with recourse. It prompts us to identify the correct distinction among several choices.
Answer
Without recourse: factoring company bears non-payment risk; with recourse: company retains risk.
Factoring without recourse means the factoring company takes on the risk of non-payment and cannot require the original company to buy back unpaid invoices. In contrast, factoring with recourse means the original company retains the risk and must buy back unpaid invoices.
Answer for screen readers
Factoring without recourse means the factoring company takes on the risk of non-payment and cannot require the original company to buy back unpaid invoices. In contrast, factoring with recourse means the original company retains the risk and must buy back unpaid invoices.
More Information
Recourse and non-recourse factoring affect how risk is handled in invoice factoring. Understanding these can help businesses choose the appropriate approach for cash flow management.
Tips
Assuming that non-recourse factoring absolves all risks for the business entirely can be a mistake. Certain conditions may still apply.
Sources
- Recourse vs. Non-Recourse Factoring: What's The Difference? - altline.sobanco.com
- The Difference Between Recourse and Non-Recourse Factoring - nerdwallet.com
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