Recourse and non-recourse factoring facilities

When you make use of an invoice factoring company it is very important to be aware of who is responsible for debts which occur when customers fail to pay.

If you have a recourse factoring facility then the factor will not take the risk of the debt on, they will just collect the money from you if an invoice goes unpaid.

Recourse factoring facilities explained

This is a lower cost form of factoring because you continue to take the risk of bad debt rather than the factoring company. This type of factoring is also easier to attain, the invoice factor will tend to have less stringent rules about your business systems and the payment history of your customers.

Once the invoice is returned to you, you are responsible for collection. If you are unable to do this then you can contact us and make use of our recourse collection service (see UK commercial debt recovery and international debt collection).

Non-recourse factoring facilities explained

With non-recourse factoring the factor assumes responsibility for all bad debts. This means that if a customer does not pay an invoice, either through insolvency or protracted default, you do not have to pay back the amount advanced to you by the factor.

The factor legally takes ownership of the debt and as a result this type of facility attracts higher fees as the factor is increasing their level of risk.

Non-recourse factoring facilities are difficult to obtain if you have weak financial systems or numerous customers with bad payment histories as strict credit limits will be set for your customers.

It is important to choose the correct type of factoring for the current state of your business, but equally important is choosing the right invoice factoring company to deal with. There are some factors in the market who offer lower levels of customer service, even if they charge low fees this lack of service could end up costing you more in the long run.

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You may also find our business finance glossary of terms useful.