Non-recourse factoring is a type of invoice factoring where the factoring company assumes the risk of customer non-payment due to insolvency or bankruptcy. If your customer can't pay because they go out of business, you don't have to buy back the invoice.
Recourse vs Non-Recourse: The Key Difference
The fundamental question is: who bears the risk if your customer doesn't pay?
- Recourse factoring: You're responsible if your customer doesn't pay. If they default, you buy back the invoice.
- Non-recourse factoring: The factoring company absorbs the loss if your customer becomes insolvent or bankrupt.
Important: Non-recourse factoring typically only covers insolvency - not disputes, slow payment, or customers who simply refuse to pay.
When Non-Recourse Makes Sense
- You have customers with uncertain financial stability
- You're factoring large invoices where a single default would hurt
- You want peace of mind and are willing to pay for it
- You're entering new markets with unfamiliar customers
- Your industry has historically volatile customer bases
Want protection from bad debt?
Ask about non-recourse factoring options.
Non-Recourse Factoring Costs
Non-recourse factoring typically costs 0.5-2% more than recourse factoring. This premium pays for credit insurance that protects against customer insolvency. Whether this extra cost is worth it depends on your risk tolerance and customer base.
What Non-Recourse Doesn't Cover
It's critical to understand the limitations:
- Disputes - if the customer refuses to pay due to a service issue, you're still responsible
- Slow payment - non-recourse only kicks in for actual insolvency/bankruptcy
- Fraud - if you invoice for work not performed, you're liable
- Pre-existing problems - issues known before factoring aren't covered
Making the Choice
Consider recourse factoring if:
- Your customers are large, stable companies
- You have long-standing relationships with known payment history
- You want the lowest possible factoring rate
- You're comfortable managing some credit risk
Consider non-recourse factoring if:
- You work with smaller or less established customers
- You're factoring large individual invoices
- You prefer to eliminate credit risk entirely
- The peace of mind is worth the extra cost
Get Started
Factoring Express offers both recourse and non-recourse factoring options. We'll help you evaluate your customer base and determine which approach makes sense for your business. Call 855-767-7771 to discuss your options.