Non-recourse factoring: who carries the risk if a customer doesn't pay?

One of the first questions businesses ask about factoring is: “what happens if my customer doesn't pay?” The answer depends on whether your facility is recourse or non-recourse.

Recourse vs non-recourse

With a standard recourse facility, if an invoice is still unpaid after an agreed period — commonly around 90 to 120 days past due — the advance on that invoice reverses, and the credit risk stays with you. With non-recourse factoring, the funder absorbs the loss if a customer becomes insolvent and genuinely can't pay.

What non-recourse does and doesn't cover

It's important to read the detail. Non-recourse typically covers a customer's confirmed insolvency — not a disputed invoice, a quality complaint, or simply slow payment. It is, in effect, bad-debt protection bundled into the facility.

The trade-off

That protection isn't free: non-recourse facilities cost more than recourse ones, reflecting the risk the funder takes on. The question is whether the peace of mind — and the protection of your balance sheet against a single customer failing — is worth the extra cost for your business.

Is it worth it for you?

If you have a concentrated customer base, or one bad debt would seriously hurt, non-recourse can be money well spent. If your customers are diverse and reliable, recourse may be the more economical choice. We can model both for your situation.