ability to compel payment. Under negotiable instruments law, recourse conveys the right to collect from a writer or endorser of a negotiable instrument, such as a check or draft. When an installment sales contract is sold to a bank on a recourse basis, the retailer takes full responsibility for the paper if default occurs. In commercial finance, where a lender purchases a merchant's accounts receivables, the finance company reserves the right to charge back any disputed invoices to the customer and debit the customer's account. In contrast, factoring is done on a nonrecourse
basis; in other words, the factor buying the merchant's credit receivables makes the credit evaluation in advance and assumes all credit risk of nonpayment.
ability of a lender to claim money from a borrower in default, in addition to the property pledged as collateral.
legal ability the purchaser of a financial asset may have to fall back on the original creditor if the current debtor defaults. For example, an account receivable sold with recourse enables the buyer of the receivable to make claim on the seller if the account doesn't pay.
the ability of a lender to claim money from a borrower in default' in addition to the property pledged as collateral.
Example: Ross obtains a mortgage loan from Local Savings. Should Ross default on the loan, Local Savings may foreclose and force the sale of the mortgaged property. Should the sale fail to satisfy the unpaid loan principal, Local Savings has recourse to other assets of Ross.
