Factoring Structures – Recourse & Non-Recourse Invoice Factoring

Recourse vs. Non-Recourse Factoring: What’s the Real Difference?

When it comes to invoice factoring, there are really two main offers, recourse and non-recourse and understanding the difference can save you a lot of time (and money).

Recourse factoring is the most common. Here’s how it works: you sell an invoice to the factoring company and get cash up front, let’s say $50,000. If your customer pays, great! If not, and they go out of business, dispute goods/services or simply don’t pay, you’re responsible for buying the invoice back from the factoring company. Think of it as: you get the cash today, but you still carry the risk if your customer defaults. Because the factor has less risk, the cost is usually lower, making it a great option if your customers are reliable.

Non-recourse factoring, on the other hand, shifts more of that risk onto the factoring company. As long as your customer qualifies for credit insurance, you’re protected if they can’t pay due to insolvency or bankruptcy. So, if that same $50,000 customer went under, the factor takes the loss, not you. Sounds great, right? It is, but keep in mind non-recourse doesn’t cover every situation. If your customer disputes the invoice (maybe they say the order was wrong or incomplete), the burden of repayment falls back to you. 

Here’s the quick version:

• Recourse factoring → lower cost, more responsibility on you.
• Non-recourse factoring → higher protection, but higher cost and stricter qualifications.

At the end of the day, the right option depends on your business and your customers. If your clients have strong payment histories, recourse factoring might make more sense and save you money. But if you’re working with larger accounts or want peace of mind against bankruptcy risk, non-recourse can be a smart safety net.