Glossary · Invoice finance
Recourse factoring
In recourse factoring, the supplier must buy back or repay any factored invoice the customer doesn’t pay, so the bad-debt risk stays with the supplier.
Under recourse factoring, the factor advances cash against your invoices, but if a customer fails to pay within a set period, you must repay the advance or replace the invoice. The factor provides financing and collection; it doesn’t take the credit risk.
Because the factor bears less risk, recourse factoring is cheaper and easier to get than non-recourse. It is the more common arrangement.
Read the recourse period carefully. If invoices revert to you at, say, 90 days, a slow-paying customer can send a large balance back to you at a bad time.
Example
A factored €8,000 invoice is still unpaid 90 days after the due date. Under the recourse agreement, the factor deducts the €6,800 advance from the supplier’s next funding.