Factored receivables with recourse

To understand your factoring agreement and its conditions means you understand the risks prevailing and the implications the agreement in force has on your company and its financial statements as they are. 

Factoring your receivables recourse means that the sales invoices you’ve sold to the financing company (i.e. bank) are not the bank’s problem eventually, but still yours. In a nutshell, you’ve given the receivables to a third party and you’re getting funds in return. However, whether the receivables are collected or not, whether they’re impaired is still your risk since the term ‘recourse’ means that you’re obliged to buy back those receivables that are uncollected after a determined period and you’re still facing the ordeal of getting the money from your customers.

On your financial statements you keep the receivable balances and in addition you’re recognizing a liability from factoring agreements (against it you’re getting finances from the financing company so essentially you’ll be recognizing a loan backed with the receivables).

Failure to understand you have a recourse factoring agreement would result in unrecognized liability and you’re amazement and probably difficulties in meeting the banks demands after the period has run out and there are receivables still uncollected.