Definition
In invoice finance, recourse means that if a customer does not pay a financed invoice, the business must repay the advance or replace the invoice, so the business keeps the credit risk. Non-recourse means the provider takes on some or all of that risk for approved customers, usually for a higher fee and subject to conditions and limits. Most small business facilities are recourse.
Every invoice carries a risk that the customer never pays. Recourse terms decide who carries that risk under an invoice finance facility.
Recourse
With recourse, the provider can ask the business to repay the advance, or replace the invoice with another, if the customer does not pay within a set time. The business keeps the bad debt risk. This is the most common arrangement and usually the cheaper one.
Non-recourse
With non-recourse, the provider accepts some or all of the credit risk on approved customers, typically if the customer becomes insolvent. Fees are higher, and disputed invoices or customers outside approved limits are often excluded.
Choosing
Consider your customers’ creditworthiness, how concentrated your sales are and whether you already have trade credit insurance. Our invoice finance review explains the wider picture. To explore a facility, make one enquiry.
Common questions
Is non-recourse factoring like insurance?
In part. The provider takes on the risk of an approved customer failing to pay, usually because of insolvency, but disputes and other issues are often excluded.
Which is cheaper?
Recourse facilities are usually cheaper because the business keeps the credit risk.
Sources and further reading