Factoring without recourse
(non recourse factoring) - is a type of factoring services, which provides for the transfer of all risks of payment or non-payment by the debtor of the amounts payable under the contract for the supply, performance of work or provision of services to a fully financing organization - the factor.
Features of factoring without recourse
The current way of financing
Given the dynamic changes, unpredictability and turbulence of the market environment, this is a very relevant way of financing. For organizations that are in the stage of rapid development, it is important to provide sufficient financial support to expand the market, conclude contracts with new counterparties.
However, it was too difficult and impractical to invest time and effort in tracking the real solvency of each debtor.
It is easier to receive an amount that is less than the contractual amount, but not to lose the entire estimated payment for the delivered products.
If we talk about factoring without recourse in simple words, we can consider such a scheme as an example:
1.
Supplier (person A) transfers goods to customer (person B) on deferred payment terms;
2.
The relevant agreement together with other necessary documents is submitted to the factor (person B) for consideration;
3.
The contract is concluded between three parties;
4.
The factor (person B) pays the supplier (person A) 60-90% of the amount;
5.
If payment is not received from the customer (person B), the factor (person C) demands money only from the customer (person B), person A is not responsible.
The most important features of such a scheme:
The supplier (person A) may receive a significant part of the money for the goods before the customer (person B) pays for them;
No more than 60-70% of the amount payable under the contract has been paid;
Under adverse circumstances, the factor (person C) fully assumes responsibility for non-payment of the debt by the customer (person B).