•   Wednesday, June 12, 2024

Factoring with recourse - what is this service all about?

Factoring takes different forms. One of the most popular is factoring with recourse, also called partial factoring. This type of service is offered by the vast majority of specialized factoring companies and financial institutions for which factoring is a side activity. What is recourse factoring actually about?

How does factoring with recourse work?

In the case of recourse factoring, as in the case of full factoring, there is total or partial financing of an invoice or several invoices, the payment term of which is postponed for various reasons. The difference is that in the case of factoring with recourse, the factor does not take responsibility for the possible insolvency or bankruptcy of the defaulting customer - the entire risk remains with the factor. In other words, despite the assignment of receivables to a factor, the customer will remain a party to the contract, and not his insolvent customer. Even if the invoice is not received by the invoice provider, the invoice provider will have to reimburse the invoice provider for the amount collected and the fee charged.

Factoring with recourse - who can use this service?

Regression factoring financing is available to virtually all companies, regardless of size, market position or industry. This is due to the fact that the risk for the factor is much lower than in the case of full factoring. For many companies, recourse factoring may be the only way to obtain the funds necessary to execute a large order or finance their own development - these companies usually do not have sufficient creditworthiness to count on the bank's help, while full factoring may turn out to be simply too expensive for them.

Advantages of using recourse factoring

The reason why many companies choose this type of financing is because recourse factoring is simply cheaper than full factoring. Specialized companies make us pay dearly for removing the risk from the client's shoulders, as a result of which it may turn out that the fee for using the service will absorb the lion's share of the profits from the order for which we needed factoring. In addition, factoring with recourse has all the advantages of factoring in general - a small number of formalities, short waiting time for withdrawal of funds, the possibility of relative independence from defaulting customers and, in many cases, the possibility of using the resources and experience of a factoring company in the field of recovering debts without going to court.

Before you decide on factoring with recourse

The basic condition for the profitability of recourse factoring is the solvency and reliability of our customers. If we can be sure of their honesty and the fact that even if they exceed the end of the repayment period, they will pay all their debts, then the only cost we will incur as a result of using factoring will be a fee to the benefit of the factor. Usually it amounts to about 10% of the factoring amount. This is much less than in the case of full factoring.

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