When a business sells its accounts receivable to a non-recourse factor, the factor owns the debt and the risk, with the notable exceptions of disputes, fraud or non-legally enforceable indebtedness. Additionally, if the buyer is unable to pay due to cashflow problems or insolvency, the non-necourse factor is stuck with that debt, with no recourse to the seller.
Non-recourse factors typically charge more than recourse factors due to retention of the credit risk. credit insurance is often used as part of a non-recourse factoring arrangement, with the non-necourse factor using its own policy.
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