Recourse and non-recourse are a part of which source of finance?

Debentures

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Retained Earnings

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Trade Credit

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Factoring

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Solution

The correct option is D
Factoring

There are two methods of factor financing, i.e. recourse and non-recourse. Under recourse factoring, the client is not protected against the risk of bad debt. On the other hand, the factor assumes the entire credit risk under non-recourse factoring, i.e. full amount of invoice is paid to the client in the event of the debt becoming bad.

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The difference between non-recourse as opposed to recourse factoring is that the company has no liability with any uncollected invoices.

Explain trade credit and factoring as a source of finance for a business enterprise.

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