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Liquidity in large-scale projects

Non-recourse factoring

 

 

As a company, you regularly make advance payment for your customers within the scope of your sales and deliveries. This can – especially if it’s a high-volume business – significantly affect your company’s liquidity and, in turn, burden your balance sheet.

In times of limited and expensive bank credits, non-recourse factoring represents an important means of financing. Aside from immediate access to cash, it offers companies the advantage that the bad debt risk is also sold off immediately.

Immediate liquidity for individual transactions

The word-for-word translation of “forfaiting” (from the French “à forfait”) is ‘lock, stock and barrel’ – which means: without recourse. As an important financing instrument, for example in plant and project construction, non-recourse factoring therefore means the purchase of mid- to long-term receivables by the financial institution (Forfaiteur) without any means of regress towards the seller of the receivable (Forfaitist) in case of payment default. Aside from the commercial risk, the selling company also passes the political risk on to the financial institution (Forfaiteur). In return, a bank guarantee is often provided as collateral.

As opposed to factoring, this is not a short-term revolving receivable, but generally a mid- to long-term receivable that results from an individual transaction. Even short-term receivables can be included in non-recourse factoring. The basic premise for the non-recourse factoring is that the receivable is abstract, i.e. that it is independent of the underlying transaction.

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