When recourse factors buy accounts receivable, the seller receives money from the factor when they present their AR invoices; however, sellers retain the risk of nonpayment. In the event of non-payment, the recourse factor charges the unpaid debt back to the seller.
Recourse factors typically charge less than non-recourse factors, since the seller remains on-risk in the event of non-payment.
Credit insurance is often used as part of a recourse factoring arrangement, with the recourse factor expecting the seller to take out its own policy, with the factor as the beneficiary.
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