What if my customer does not pay an invoice?

When a factor buys an invoice and that invoice doesn’t get paid, the factor looks at the reason for the non-payment and puts it into one of two buckets: non-payment due to insolvency (the customer can’t pay because they’ve gone bankrupt or shut down) or non-payment due to a dispute (the customer is refusing to pay because of an issue with the goods or services).

If your customer does not pay the factor, this is where your agreement with the factor—recourse or non-recourse—really matters.

• Recourse factoring: If you’re in a recourse arrangement, you’re ultimately responsible for repayment no matter what. If an invoice goes unpaid for any reason, the obligation comes back to you.
• Non-recourse factoring: With non-recourse, the factor takes on the risk if your customer becomes insolvent. But here’s the fine print—non-recourse usually has limitations. For example, it often only applies if the customer was covered by credit insurance, and even then, the coverage depends on the approved exposure limits.

One important thing to remember: disputes are always your responsibility. If your customer claims the invoice is wrong, incomplete, or tied to a service or product issue, the factor won’t absorb that loss. It’s still on you to make the factor whole.