Recourse vs. Non-Recourse Factoring

In recourse factoring, you are responsible for buying back an invoice if your customer never pays. In non-recourse factoring, the factoring company absorbs that loss under specific conditions — and charges more for taking on the risk.

How recourse factoring works

Recourse is the most common form of invoice factoring. You sell an unpaid invoice to a factoring company and receive most of its value quickly; the rest, minus the factor's fee, comes when your customer pays. The word "recourse" means the factor has recourse back to you if that customer never pays.

In practice, an unpaid invoice is usually charged back to you or swapped for another invoice of similar value. Because you retain the credit risk, recourse factoring is priced lower and is easier to qualify for. It fits businesses that invoice reliable, creditworthy customers and simply want faster access to cash they are already owed.

How non-recourse factoring works

Non-recourse factoring shifts certain default risk to the factoring company. If your customer fails to pay because they became insolvent within the agreed terms, the factor — not you — typically absorbs the loss. That protection is the whole appeal.

The catch is in the fine print. Non-recourse usually only covers a narrow definition of default, most often the customer's confirmed insolvency, and not disputes over quality, delivery, or plain slow payment. It costs more than recourse and factors are more selective about the customers and industries they will cover.

Recourse vs. non-recourse: which is right for you?

The decision comes down to how much default risk you want to carry and how much you are willing to pay to offload it.

• Recourse is usually the better value if your customers pay reliably and you want the lowest cost and easiest approval.
• Non-recourse can be worth the premium if you depend on a few large customers and one insolvency would seriously hurt you.
• Read the covered events in any non-recourse agreement — "non-recourse" rarely means every unpaid invoice is protected.

Factoring is just one tool. If your customers pay slowly but predictably, a line of credit may cost less and keep the customer relationship entirely in your hands.

Getting factoring matched to your business

The Broker Shop is a broker, not a lender or a factoring company. We take one application and match you to the lenders and factors whose guidelines you meet, so you can weigh a recourse offer against a non-recourse one and against other products entirely.

That comparison is the point — the lowest advance rate is not always the best deal once you account for which defaults are actually covered. Seeing your options is free and won't affect your credit score.