Factored receivables with nonrecourse

We have now discussed factoring agreements with recourse however what if the risks prevailing are indeed transferred? If you’ve signed on an agreement where you’re in fact selling the receivables and you’re no longer and will not be in future responsible or taking risks in relation to the collection of the invoices, you’ve in fact sold them receivables for good and you can account for the actual collection of the receivables once you’re being paid by the financing company (i.e. bank). 

Factoring your receivables with nonrecourse conditions effectively means that you don’t maintain an obligation to buy those receivables back after a period in time has elapsed. This condition is usually very clearly defined within the factoring agreement so best look out for it.

As it is you would use nonrecourse type of factoring for receivables you know are riskier or in case you really do prefer not to have the risk of impairment you would have to tackle at a later date. Just sell them and be done with it essentially is what you’re aiming at. This comes with a price tag obviously, but is a way to ensure that you get your money.