CA Intermediate · Financial Management and Strategic Management · Management of Receivables
Under the Indian factoring arrangement, in 'recourse factoring' the client:
In recourse factoring the client remains liable to the factor if the customer defaults. The factor can recover the unpaid amount from the client, so bad-debt risk is not transferred, unlike non-recourse factoring where the factor bears the credit risk.
- ARemains liable to the factor if the customer fails to payCorrect
- BTransfers the entire credit risk to the factor
- CReceives no advance against invoices
- DPays no commission or charges to the factor
Explanation
In recourse factoring the factor can claw back from the client any amount the customer does not pay, so credit risk stays with the client. Non-recourse factoring transfers that risk to the factor.
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