Question

Bad debt cost is not borne by factor in case of ____________.

• A. Pure Factoring
• B. Without Recourse Factoring
• C. With Recourse Factoring
• D. None of the above

Answer 1

The correct option is C With Recourse Factoring

Recourse and non-recourse factoring are different concepts altogether. The main difference between the two is that in recourse factoring the credit risk of customers stays with the client i.e. in the case of non-payment of any bills receivable by the customer, the obligation to bear the risk stays with the client and not with the factor.

So the risk of bad debts always stays in the business. On the other hand, in non-recourse factoring, the credit risk of non-payment of bills receivable stays with the factor and not with the client.

Thus, the business can function smoothly without worrying about the bad debts.