Around 38 UK businesses close every day, according to the Department for Business and Trade's 2025 late-payment consultation. When one of them is your customer, the invoice you had factored does not disappear; somebody has to absorb it. Under a recourse facility that somebody is you. Under non-recourse, if the customer was approved and the loss falls within the terms, it is the provider.
Recourse and non-recourse side by side
Recourse factoring
- You carry the bad debt risk; unpaid invoices are charged back after the recourse period.
- Lower cost: no protection premium, often a slightly higher advance rate.
- Provider still runs credit control and chases before charging back.
- More widely available, including to businesses with weaker customers.
Non-recourse factoring
- Provider absorbs the loss if an approved customer becomes insolvent, within agreed limits.
- Higher cost: premium of roughly 0.5% to 1% of insured turnover, sometimes a lower advance rate.
- Provider credit-approves each customer and sets a limit; invoices above it revert to recourse.
- Does not cover disputes or commercial refusals to pay.
Recourse: the provider's right to come back to you for the money if a factored invoice is not paid. "Without recourse" transfers the risk of approved customer insolvency to the provider, subject to the terms of the protection.
Who carries the bad debt risk, in practice
Under recourse factoring, the provider's credit control team chases. If the invoice is still unpaid at the end of the recourse period, often 90 to 120 days past the invoice or due date, the provider deducts the advance from your next payment or the reserve it holds, or asks you to repay it. The debt is reassigned to you to pursue or write off, and some providers charge a refactoring fee at that point.
Under non-recourse factoring, the provider has credit-approved each customer and set a limit. If an approved customer enters administration, liquidation or a company voluntary arrangement, the provider absorbs the loss on invoices within the limit; you keep the advance and may receive some or all of the balance. What you do not get is cover for an invoice the customer disputes, refuses to pay, or that exceeds the limit; those remain with you exactly as under recourse.
What non-recourse protection covers and excludes
| Situation | Usually covered? | Notes |
|---|---|---|
| Approved customer enters administration or liquidation | Yes | The core event, up to the approved limit, often after a small excess. |
| Approved customer simply does not pay for a long period | Sometimes | Protracted default. Some policies cover it after 120 to 180 days; many do not. |
| Customer disputes the invoice or claims faulty goods | No | A commercial matter between you and the customer, not a credit event. |
| Invoices above the customer's approved limit | No | The excess reverts to recourse. |
| Customer the provider declined to approve | No | Funding is on a recourse basis. |
| Invoice raised after a limit was withdrawn | Often no | Sales after a known adverse event are commonly excluded. |
| Export customer insolvency | Depends | Many providers cover approved overseas debtors; some exclude certain countries. |
The cost difference
Non-recourse costs more in two ways. The visible one is a bad debt protection premium of roughly 0.5% to 1% of insured turnover; some providers show it separately, others fold it into a higher service fee, so compare the all-in figure. The less visible one is a possible lower advance rate, perhaps 80% rather than 85%. Our invoice factoring costs guide explains how these combine with the other charges. Against that, recourse carries the refactoring fee, the cost of pursuing the debt yourself and, most importantly, the loss itself if the customer fails.
Choose recourse if, choose non-recourse if
Choose recourse factoring if
- Your customers are large, well-rated organisations or public bodies with negligible insolvency risk.
- Your ledger is spread across many customers, so no single failure would be serious.
- Your margins are tight and the premium would make the facility uneconomic.
- You already hold trade credit insurance.
- Your main risk is slow payment rather than non-payment.
Choose non-recourse factoring if
- One or two customers make up a large share of your ledger.
- You sell to overseas customers whose credit standing you cannot easily judge.
- Your customers are smaller private companies in sectors with high failure rates.
- A single large bad debt would threaten the business.
- You value the provider's credit checks on new customers as a warning system.
Bad debt protection as an add-on: the option in between
Recourse and non-recourse are not the only two settings. Most providers also offer bad debt protection as an add-on to a recourse factoring or invoice discounting facility, often selectively: you insure particular customers, such as the one that accounts for 35% of sales or the export customers. The premium applies only to the insured turnover, so the cost is lower than full non-recourse, and the rest of the ledger keeps the higher recourse advance rate. For many businesses this gives most of the benefit at a fraction of the cost. Stand-alone trade credit insurance is a further alternative.
Not sure how exposed your ledger is?
Tell us roughly who your largest customers are and what share of sales they represent, and we will explain which structure providers are likely to suggest.
Example: a customer insolvency under each option
A packaging distributor factors a £40,000 invoice at an 85% advance. The service fee is 1.5% under recourse and 2.25% under non-recourse, the extra 0.75% being the protection premium. Ninety days after invoice, the customer enters administration with the invoice unpaid. The discount charge, similar under both, is left out.
Illustrative example £40,000 invoice, customer insolvent, under recourse and non-recourse
- Invoice value
- £40,000.00
- Initial advance received (85%)
- £34,000.00
- Recourse: service fee (1.5%)
- £600.00
- Recourse: advance charged back at end of recourse period
- £34,000.00
- Recourse: refactoring fee (illustrative 1%)
- £400.00
- Recourse: net position
- Loss of the £40,000 debt plus £1,000 in fees, less any recovery from the administration
- Non-recourse: service fee including protection (2.25%)
- £900.00
- Non-recourse: advance retained by the business
- £34,000.00
- Non-recourse: balance paid by provider under protection (assuming 100% cover)
- £5,100.00
- Non-recourse: net position
- £39,100 received; loss limited to the £900 fee
Had the customer paid normally, non-recourse would have cost £300 more on this invoice, or about £3,600 across a year of similar invoices. Whether that is worth paying depends on how likely the failure was and how badly a £40,000 loss would hurt. The non-recourse outcome also assumes the customer was approved for at least £40,000 and the invoice was undisputed.
Figures are illustrative estimates only and do not represent a finance offer. Some non-recourse facilities cover less than 100% of the invoice, apply an excess or exclude certain balances; terms, fees and advance rates vary by provider and circumstances.
Questions to ask before choosing
What triggers a claim?
Formal insolvency only, or protracted default as well? After how many days?
What percentage is covered?
Some protection pays 100% of the invoice; some pays 90% or applies a first-loss excess.
How are limits set and changed?
Can a limit be withdrawn with no notice, leaving recent invoices exposed?
What happens to disputed invoices?
Under either option they come back to you.
See what happens if a customer does not pay for the practical steps under each structure, and the factoring calculator for what a premium adds to your own invoices.
Frequently asked questions
What is the difference between recourse and non-recourse factoring?
Who bears the loss if a customer does not pay. Under recourse factoring, the business must repay or replace the advance on any invoice still unpaid after an agreed period. Under non-recourse factoring, the provider absorbs the loss if an approved customer becomes insolvent, subject to the terms and limits of the protection.
Does non-recourse factoring cover every unpaid invoice?
No. It normally covers the insolvency of a customer the provider has credit-approved, up to an agreed limit. It does not usually cover disputes, commercial refusals to pay, invoices above the approved limit, or customers the provider declined to approve. Some policies also cover protracted default, but that is not universal.
How much more does non-recourse factoring cost?
The protection is usually priced as a premium of roughly 0.5% to 1% of insured turnover, either built into a higher service fee or charged separately, and providers may apply slightly lower advance rates. On £1m of turnover the extra cost is typically in the region of £5,000 to £10,000 a year.
Can I get bad debt protection without factoring?
Yes. Bad debt protection is available as an add-on to invoice discounting, and stand-alone trade credit insurance covers the same risk without any funding attached. Non-recourse factoring is one way of buying the cover, not the only one.
What is a recourse period?
The time an invoice can remain unpaid under a recourse facility before the provider asks for the advance back, often 90 to 120 days from the invoice or due date. Some providers also charge a refactoring fee on invoices that reach the end of the recourse period.