In recourse factoring, who bears the risk for unpaid invoices?

• A. The factor
• B. The buyer
• C. The seller
• D. The carrier

Answer: (C)

In recourse factoring, the seller bears the risk of unpaid invoices. Here’s why: the seller sells its accounts receivable to a factor to get cash up front, but the agreement allows the factor to seek repayment from the seller if the customer who owes the money doesn’t pay. So even though the factor provides funds and handles collection from the debtor, the responsibility for bad debt ultimately falls back on the seller. The buyer (the customer who owes the money) is the one who would normally pay, but in recourse factoring the financial hit if that payment never comes goes to the seller, not the factor. The carrier isn’t involved in this payment risk.