One of the most important decisions when choosing a factoring arrangement is whether to go with recourse or non-recourse factoring. This decision affects your risk, your costs, and your peace of mind.
Quick Definitions
Recourse factoring means you guarantee payment. If your customer doesn't pay the invoice, you must buy it back from the factoring company. Non-recourse factoring means the factoring company assumes the credit risk. If your customer can't pay due to insolvency, you're not responsible.
The Risk Factor
- Recourse: You bear the risk of customer non-payment. If a customer goes bankrupt or refuses to pay, you owe the money back.
- Non-recourse: The factoring company absorbs the loss from customer insolvency. You're protected against bad debt.
Important caveat: Non-recourse protection typically only covers customer insolvency or bankruptcy - not disputes, slow payment, or refusal to pay for other reasons.
Cost Comparison
Non-recourse factoring typically costs 0.5-2% more than recourse factoring. This premium covers the credit insurance that protects against customer default. For a $100,000 invoice at 3% recourse vs 4.5% non-recourse, the difference is $1,500 per invoice.
Compare your options
Get recourse and non-recourse quotes.
Advance Rates
Recourse factoring typically offers higher advance rates (85-97%) because the factor has less risk. Non-recourse advances tend to be slightly lower (80-90%) due to the additional risk the factor assumes.
Best Situations for Recourse
- Your customers are large, financially stable companies
- You have long relationships with known payment histories
- You want the lowest possible factoring rate
- You're comfortable doing some credit management yourself
- Your invoices are relatively small so individual default risk is manageable
Best Situations for Non-Recourse
- You work with smaller or newer companies with uncertain stability
- You have large individual invoices where a single default would be painful
- You're entering new markets with unfamiliar customers
- You want complete peace of mind regarding credit risk
- Your industry has historically volatile customer bases
Hybrid Approach
Some businesses use recourse factoring for their established, creditworthy customers (getting the lower rate) and non-recourse for newer or riskier customers (getting the protection). This combination optimizes both cost and risk management.
Talk to Us
Factoring Express offers both recourse and non-recourse options. We'll help you analyze your customer base and determine the right approach. Call 855-767-7771 for a free consultation.