Glossary · Invoice finance
Non-recourse factoring
In non-recourse factoring, the factor bears the loss if a customer can’t pay because of insolvency, in exchange for higher fees.
Non-recourse factoring adds credit protection to financing. If a customer the factor has approved becomes insolvent, the factor absorbs the loss and you keep the advance.
The protection is usually narrower than the name suggests. It typically covers only insolvency of approved customers, up to their approved limits — not disputes, not invoices the customer refuses to pay over quality, and not customers the factor didn’t approve.
Fees are higher than for recourse factoring, reflecting the credit insurance built into the deal.
Before signing, check three things: which customers are approved and up to what limit; what counts as a covered default (insolvency only, or also long non-payment); and what happens to an invoice the customer disputes. Those answers decide whether the protection is worth its price.
Example
A factored customer owing €15,000 goes into liquidation. Under a non-recourse agreement covering that customer, the supplier keeps the advance and the factor files the claim in the liquidation.