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“Services provided by IGF allowed us to capitalize on significant growth opportunities over a short period of time; tripling our workforce and increasing our revenue 10 fold”
Carol Craig
President,
Craig Technologies
ACCOUNTS RECEIVABLE FACTORING
the practical difference between recourse and non recourse account receivable factoringPerhaps the most misunderstood language dealing with accounts receivable factoring is that concerning recourse.
The basic concept of factoring is pretty easy to understand. Company A delivers goods or services to Company B
and invoices Company B for them. The factoring company then buys this invoice from Company A for a discounted rate,
immediately depositing this amount in Company A’s bank account. After a due period of time, Company B pays the
factoring company the full amount of the invoice. Company A is happy because it got paid immediately, Company B is
happy because it received its goods or services. The factoring company is happy because it made money on the
transaction (the difference between the discounted rate it paid Company A, and the full invoice amount it was paid by
| Company B.) In a perfect world that would be the end of things.
In reality however, there are occasions when Company B does not pay the factoring company in a timely fashion.
It is at this point that the concept of recourse and non recourse comes into play. The most common mistake people
make with accounts receivable factoring is in understanding what recourse and non recourse actually mean.
Factoring with recourse is the clearer of the two in that it means what it says: if Company B does not pay the factor in a
timely fashion (usually within 90 days), then recourse kicks in and Company A owes the factoring company the full
amount of the invoice. The usual mistake is to believe that factoring without recourse means that if Company B fails to
pay the factoring company, then Company A is off the hook. This is not the case. What factoring without recourse means in
practice is that if, and only if, Company B cannot pay the factor because they are insolvent, then Company A is off the hook.
Since an insolvent company is one that cannot pay its debts (basically the company is bankrupt, whether or not they’ve
actually filed for bankruptcy, companies that are slow payers are not covered by non recourse language in factoring
agreements.
If you have other questions about accounts receivable factoring, or want to get started with factoring, please click here
and fill out the inquiry form—an IFG Network representative will get in touch with you shortly. We invite you to call us as
well at 877-210-9748. We look forward to hearing from you. 210-9748. We'll be happy to discuss your factoring options.
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