Agreement Accounts Receivable Without Recourse In Wake
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In financial transactions, without recourse disclaims any liability to the subsequent holder of a financial instrument. Thus, endorsing a check and adding without recourse to the signature means that the endorser takes no responsibility if the check bounces for insufficient funds.
In non-recourse receivables finance, the factor purchases the receivables from the seller and assumes the full debtor default risk. In a recourse transaction, the debtor default risk remains with the seller. Receivables purchased under a non-recourse agreement can generally be removed from the seller's balance sheet.
Factoring without recourse means that the risk of accounts receivable being uncollectible transfers from the buyer to the seller. Basically, if an accounts receivable cannot be collected, the seller does not have to reimburse the buyer like they would if the factoring was “with recourse”.
When a company factors receivables it means that they sell them to another party. If the transaction is without recourse that means the buyer takes on all the risk of credit losses. The seller of the accounts receivable does not bear any risk after the sale is complete.
Receivables finance can be provided to the seller on a “non-recourse” or “recourse” basis. In non-recourse receivables finance, the factor purchases the receivables from the seller and assumes the full debtor default risk. In a recourse transaction, the debtor default risk remains with the seller.
In contrast, when receivables are purchased on a with-recourse basis, the buyer of receivables has a right of recourse. Thus, the risk of the seller of receivables gains in importance. However, not to the same extent as, for example, in case of another source of liquidity, a working capital facility.
What Is Without Recourse? "Without recourse" means that one party cannot obtain a judgment against, or reimbursement from, a defaulting or opposing party in a financial transaction. When the buyer of a promissory note or other negotiable instrument enters into a "no recourse" agreement, they assume the risk of default.
