The Department for Business and Trade put the cost of late payment to UK businesses at almost £11bn a year in 2025, with 38 closures a day. Many of those closures are suppliers taken down by a customer's failure. Non-recourse factoring is designed to stop that chain reaction, but its protection is narrower than the name suggests, and the boundaries matter more than the headline.
What non-recourse factoring is
Non-recourse factoring: an invoice factoring arrangement in which the provider, rather than the business, absorbs the loss if an approved customer becomes insolvent or, in some facilities, fails to pay an undisputed invoice for a prolonged period. Cover applies only to invoices within the credit limit set for that customer and is subject to the terms of the agreement.
In every other respect the facility works like standard invoice factoring: invoices are assigned, an advance of typically 70% to 90% is paid, and the provider runs collections. The difference is what happens at the end of the recourse period. Under a recourse facility an unpaid invoice returns to you and the advance is recovered. Under a non-recourse facility, if the reason for non-payment is one the cover recognises, the provider writes the loss off against its own protection and you keep the funds.
What the protection covers, and what it does not
"Non-recourse" is often read as "no risk". It is better understood as "no credit risk on approved customers within limits". Every director should be able to recite the two columns below before signing.
Typically covered
- Formal insolvency of an approved customer: administration, liquidation or a company voluntary arrangement
- Protracted default in facilities that include it: an undisputed invoice unpaid for a set period, often 120 to 180 days past due, with no insolvency event
- Invoices raised within the credit limit set for that customer at the time of invoicing
- Invoices that are undisputed, delivered and accepted
Typically not covered
- Disputes of any kind: quality, quantity, price, late delivery or a missing purchase order
- Contras and set-off, where the customer also supplies you and nets the balances
- Invoices to uninsured or unapproved customers, including those the provider declined to set a limit for
- The portion of a balance over the credit limit, and invoices raised after a limit was withdrawn
- Associated companies, consumers and, often, overseas debtors unless export cover is arranged
- Simple slow payment that resolves before the protracted default period
Some facilities also carry an excess per claim, and a few cover only 90% of the insured balance. Ask for these details specifically.
How credit limits control the cover
A non-recourse facility runs on a list of approved customers, each with a credit limit set by the provider or its insurer. The limit is the maximum balance for that customer the provider will protect at any one time. If a customer has a £50,000 limit and owes £65,000 when it fails, £50,000 is covered and £15,000 is recoursed to you.
Limits are not static. Providers monitor customers continuously and can reduce or withdraw a limit if the customer's profile deteriorates, often with little notice. Invoices already raised normally stay protected; new invoices do not. A withdrawn limit is a strong signal that the customer is in trouble, and the sensible response is to tighten terms or stop supplying on credit.
The cost premium
The service fee on a non-recourse facility is typically 0.5% to 1% of turnover higher than on an equivalent recourse facility; the discount charge is normally the same. On £2m of factored turnover that is roughly £10,000 to £20,000 a year, which is the figure to compare with your historical bad debt losses and, more importantly, with the loss you could not survive.
The premium varies with sector, customer quality and concentration. A business selling to supermarkets and local authorities will be quoted near the bottom of the range; one selling to small contractors near the top, if cover is available at all. Our guide to invoice factoring costs sets the premium alongside the other charges, and the factoring calculator shows what a higher service fee does to net proceeds.
Who non-recourse factoring suits
- Businesses with concentrated ledgers
Where one or two customers account for 30% or more of sales, a single failure could be fatal. Protection converts a survival risk into a known annual cost.
- Businesses with thin cash reserves
A company that could absorb a £20,000 loss from reserves may prefer recourse. One that could not should price the protection.
- Suppliers to sectors with high failure rates
Construction main contractors, retail and hospitality groups and some manufacturing supply chains have a record of insolvencies that take suppliers down with them.
It suits less well a business with a broad spread of blue-chip customers and no history of bad debts, or one whose customers are too small to insure, which would be paying for cover that will not apply.
Worked example: an approved customer fails
Illustrative example A £40,000 balance when the customer enters administration
A packaging manufacturer factors its ledger on a non-recourse basis at a 2.2% service fee, against 1.5% for the recourse quotation it also received. Its largest customer, approved with a £35,000 credit limit, enters administration owing £40,000 across three undisputed invoices. The advance rate is 85%.
- Balance owed by the failed customer
- £40,000.00
- Credit limit at the time of invoicing
- £35,000.00
- Covered by the provider
- £35,000.00
- Over-limit portion recoursed to the manufacturer
- £5,000.00
- Advance already received on the covered portion (85%)
- £29,750.00
- Remaining 15% on the covered portion paid by the provider, less fees
- £5,250.00
- Advance recovered on the over-limit portion (85% of £5,000)
- £4,250.00
- Net loss to the manufacturer
- £5,000.00
Figures are illustrative estimates only and do not represent a finance offer. Terms of cover, limits, timing of payment and fees vary by provider and circumstances.
On a recourse facility the manufacturer would have lost the full £40,000 and seen £34,000 of advance clawed back. The extra 0.7% service fee on £1.5m of annual turnover cost it about £10,500 a year: this year the protection paid for itself three times over, and in a year with no failures it would simply have been an expense.
Non-recourse, recourse and bad debt protection compared
| Feature | Non-recourse factoring | Recourse factoring | Bad debt protection add-on |
|---|---|---|---|
| Who carries approved-customer insolvency | Provider, within limits | You | Provider or insurer, within limits, on the customers you select |
| How it is priced | Built into a higher service fee | Lower service fee | Separate premium, often 0.5% to 1% of insured turnover |
| Scope | Usually the whole approved ledger | None | Whole ledger or chosen customers |
| Available with invoice discounting | Rarely | Standard discounting is recourse | Yes, commonly |
| Best for | Factoring clients wanting ledger-wide cover | Strong, diversified ledgers where cost matters most | Discounting clients, or a few high-risk customers |
If you run an invoice discounting facility, or only want to protect a handful of customers, read about bad debt protection as an add-on. For a decision framework between the two factoring structures, see the recourse versus non-recourse comparison.
Worried about one customer in particular?
Tell us who your main customers are and we will explain whether ledger-wide cover or targeted protection is the more likely fit.
Eligibility notes
Providers apply the usual factoring criteria, set out in the eligibility guide, and then add one more: your customers must be insurable. That generally means limited companies, public bodies and larger partnerships with filed accounts and a credit history. Export debtors usually need separate arrangements. Businesses selling mainly to sole traders, consumers or start-ups are usually better served by a recourse facility with careful credit checking.
Frequently asked questions
Does non-recourse factoring mean I am never liable for an unpaid invoice?
No. It means the provider carries the loss when an approved customer becomes insolvent, or in some facilities fails to pay for a long period, provided the invoice was within that customer's credit limit and was undisputed. Disputed, over-limit or unapproved invoices come back to you in the normal way.
How much more does non-recourse factoring cost?
The service fee is typically 0.5% to 1% of turnover higher than for an equivalent recourse facility, reflecting the cost of the credit insurance the provider buys or the risk it carries itself. The exact premium depends on your sector, the spread of your customers and their credit ratings.
Is non-recourse factoring the same as bad debt protection?
They achieve the same result by different routes. Non-recourse factoring builds the protection into the facility and its fee. Bad debt protection is an optional add-on to a recourse factoring or invoice discounting facility, priced separately and sometimes applied only to chosen customers. Read the agreement for the actual terms of cover.
What is protracted default?
Protracted default is a customer failing to pay an undisputed invoice for an extended period, often 120 to 180 days past due, without any formal insolvency event. Some non-recourse facilities cover it; others cover only formal insolvency. Check which applies before relying on the cover.
What happens if a customer's credit limit is withdrawn?
Invoices raised before the withdrawal usually stay covered. Invoices raised afterwards are not protected and are treated as recourse invoices. The provider should notify you promptly so you can decide whether to keep trading with that customer on credit terms.
Is non-recourse factoring available to small businesses?
It can be, but providers are more selective than with recourse facilities. They need customers creditworthy enough to insure, so a small business selling to well-rated companies is more likely to qualify than one selling to many small or new firms.