Final answer:
Most factoring agreements of accounts receivable are made on a recourse basis, where the seller retains the risk of non-payment, as opposed to non-recourse agreements that shift the risk to the factor. Additionally, they can be classified as notification or non-notification based on whether the debtor is informed about the factoring arrangement.
Step-by-step explanation:
Most agreements involving factoring of accounts receivable are made on a recourse basis. This means that the seller of the receivables retains the risk of non-payment by the debtor. In other words, if an account debtor fails to pay the factored invoice, the seller must reimburse the factor for the amount advanced. In contrast, a non-recourse agreement would shift the risk of non-payment entirely to the factor, meaning the seller would not have to make the factor whole if the debtor defaults.
Factoring arrangements can also be categorized as notification or non-notification. A notification basis means that the debtors are notified that their debt has been factored and that they should make payment directly to the factor. In a non-notification agreement, the debtors are not aware that the receivables have been sold to a third party (the factor), and they continue making payments to the seller, which forwards them to the factor.