Encumbered

The sale or transfer by a supplier of legal title to accounts receivable (invoices).

The supplier sells or transfers title to the receivables to a third party known as a factor.

The arrangement can be either with or without recourse.

Factoring is often a convenient - but relatively expensive - form of finance for weaker corporate credits.

The supplier sells its invoices, at a discount, to the factor. The factor then becomes responsible for collecting the debt.

A factoring agreement between the factor and a client sets out the terms on which a factoring arrangement is made.

As noted above, factoring arrangements can be with or without recourse.

Recourse factoring allows the factor to recover from the supplier/borrower any losses caused by bad debts.

See also

• Factors
• Confidential factoring
• Domestic factoring
• Export factoring
• Import factoring
• Internal factoring
• International factoring
• Invoice discounting
• Recourse
• Securitisation