Factoring with the right of recourse
(recourse factoring) - is a type of factoring services, which provides for the acquisition of the right of monetary claim to the debtor for the entire amount under the contract of supply or performance of works with the possibility of reimbursement by the client, the money under the contract of supply or work performed.
Such a scheme compensates for high risks in case of financial insolvency, bad faith of the buyer or covering the cash gap of the client. Also, it is a profitable option for companies wishing to purchase goods with deferred payment.
Consider the following scheme as an example:
1.
Supplier (person A) transfers goods to customer (person B) on deferred payment terms;
2.
The supply agreement together with other necessary documents is submitted to the factor (person B) for consideration;
3.
An agreement on the provision of a sum of money is concluded - a factoring agreement;
4.
The factor (person B) pays 70-95% of the contract amount to person A;
5.
If the customer (person B) transfers the payment within the specified period, the contract is closed;
6.
If the payment is not received by the factor (person B), he demands money of his choice - from the supplier (person A) or from the customer (person B).
Factoring with the right of recourse: what does it mean in simple words?
Let us highlight a few key points:
It is about the possibility for the supplier (person A) to receive money for the goods before they are paid by the customer (person B);
The amount of payment in this case reaches 70-95% of the contract amount;
The factor (person B) takes over the management of accounts receivable, communicates with the buyer, reminds about the delay, controls its activities;
The factor can offer a risk insurance service with the involvement of a third-party insurance company.