Receivable financing helps clients(sellers) grow its business and effectively support cash flow management. It allows client(Seller) to finance its invoices to get paid before due date and hedge against credit risks under specified conditions.
Process of Account Receivable Financing
Type of Account Receivable Financing
Recourse
1.Recourse/ Seller(Assignor) takes a default risk on buyer(Obligor)
- Direct collection/ TTL collects payment from buyer (Obligor)
- Indirect collection/ Seller (Assignor) collects payment from buyer in place of TTL and repays the full amount to TTL in a set period
Non-recourse
Non-recourse/ TTL(Assignee) takes a default risk on buyer(Obligor), while Seller has no obligation to make up for such default
- Direct collection/ TTL collects payment from buyer (Obligor)
- Indirect collection/ Seller (Assignor) collects payment from buyer in place of TTL and repays the full amount to TTL in a set period
BENEFITS
Possible to effectively manage a working capital
Possible to classify it as non debt financial solution unlike bank loan (non-recourse case only)
Possible to utilize it as Off-balance sheet financing (non-recourse case only)