Non-recourse factoring

How does non-recourse factoring increase company´s leverage? Arent the receivables kinda sold to the factoring party and if the client doesnt pay, its the factoring company´s problem? No liability between the company and the factoring company.

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Yes you’re right.

With factoring, the devil is in the details, ie what exactly is being sold, what is the degree of recourse, and insurance/loss sharing, any related parties, etc.

With traditional arms length receivables factoring, the invoices are sold at some discount to face, depending on the credit quality of the payer. If the payer defaults, in a non recourse scheme, it is the risk of the factoring bank.

Normally you wouldnt include such schemes in leverage, except perhaps if they were maturing and needed to include the working capital drawdown involved in unwinding the factoring.

In the same way, in a proper leverage calculation, you dont use spot NWC/RCF/cash position, because of seasonality, but you assume some average through-the-season NWC/liquidity need for leverage purposes, since EBITDA is LTM. Although this not common. Most people just take the balance sheet amount for leverage and then accept the volatile debt numbers through the year as the seasonality progresses.

theres a legit publicly traded company that does this with auto loans. they buy loans from dealerships. lol. does anyone remember?

Buying auto loans isn’t factoring. That’s indirect auto :slightly_smiling_face: factoring is normally referring to buying receivables, not 69 month car loan

Nice loan term.