What is Non-Recourse Factoring?

Non-recourse financing is where the factor has no recourse against your business if your customer fails to pay the invoice. However, be careful to read your factoring agreements as many 'no-recourse' agreement are actually just a modified recourse agreement where the no-recourse only kicks in if the customer declares bankruptcy.

I also tend to lump in outright sales of accounts receivables into this category although factoring companies do exist that still follow a cash-advance pattern of a recourse factoring company. There are companies that will outright purchase your accounts receivables for pennies on the dollar and assume all of the collections risk. If you also control the accounts receivable purchase, you're not truly losing receiving pennies on the dollar, you're shifting assets out of the risky business into the low-risk accounts receivable company.


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