Recourse factoring allows a factor to require the seller to repurchase or reimburse receivables when specified customers fail to pay. The factor provides funding and collection services, while defined credit losses ultimately return to the seller.
How does Recourse Factoring work in practice?
The factor advances or pays against purchased receivables, but the seller must repurchase or reimburse invoices that remain unpaid under the agreed recourse conditions. Customer payment reduces the exposure. The seller therefore receives earlier cash while retaining material debtor or dispute risk, and should monitor aging before an invoice reaches its recourse date.
What the file should show
Track recourse events, aging limits, disputed invoices, repurchase amounts, reserves and customer collections.
What does Recourse Factoring not establish?
Recourse reduces the factor’s credit exposure but can create a sudden cash obligation for the seller when invoices become ineligible.
