Most factoring facilities in the UK are written on a recourse basis, and most directors who sign them never think about the word until a customer stops paying. The clause decides who absorbs the loss when an invoice is never settled: the provider that advanced the money, or the business that raised the invoice. With recourse factoring, that is you.
What recourse factoring is
Recourse factoring: an invoice factoring arrangement in which the business remains liable for any invoice its customer fails to pay. If an invoice is still unpaid at the end of an agreed recourse period, the provider recovers the advance from the business and the debt returns to the business's own ledger.
Everything else about the facility is the same as conventional invoice factoring. You assign your invoices, receive an advance of typically 70% to 90%, and the provider's credit control team chases payment. Recourse only becomes visible when something goes wrong. The alternative is non-recourse factoring, in which the provider absorbs the loss if an approved customer becomes insolvent, paid for through a higher service fee.
The recourse period
The recourse period is how long the provider will wait for payment before treating the invoice as a problem. In UK facilities it is typically 90 to 120 days, but check how it is measured. Some agreements count from the invoice date, others from the due date, and on a 60-day invoice the difference is two months.
Suppose your agreement says 90 days from invoice date and you raise an invoice on 1 March on 30-day terms. If nothing has arrived by 30 May, the invoice passes the recourse period and the provider takes action. Under a "120 days from due date" clause the same invoice would not be recoursed until the end of July.
What the provider does when an invoice is not paid
Recourse rarely means a demand for a cheque. Providers have several ways to recover an advance and usually work through them in order.
Chase through normal credit control
For most of the recourse period the provider's collections team sends statements, telephones the customer and resolves queries. Many late invoices are paid at this stage.
Recover from availability
If the invoice passes the recourse period, the advance paid against it is deducted from your availability, the pool of funds you can draw. If you had £20,000 available and £8,500 was advanced on the invoice, availability drops to £11,500.
Offset against new invoices
If availability is not enough, the provider nets the shortfall against the next invoices you submit, so the first portion of new advances goes to clearing the recoursed amount.
Request repayment
Only if the shortfall cannot be cleared by the first two routes, or the facility is being terminated, will the provider ask for a direct repayment. Most agreements allow it to demand immediate settlement in those circumstances.
Once recoursed, the invoice is yours to pursue again. Our guide to what happens if a customer does not pay covers the practical steps, including statutory interest.
Refactoring fees
A refactoring fee, sometimes called a recourse fee, is an extra charge some providers apply to an invoice that passes the recourse period, usually a percentage of the invoice value. Not every provider charges one, and rates differ widely. Because it only bites when a customer is already causing problems, it is easy to overlook when comparing quotations. Ask every provider whether one applies, what it is, and whether it is charged on the whole invoice or only the funded portion. Our guide to invoice factoring costs lists it alongside the other charges that are rarely headlined.
Why recourse factoring costs less
The service fee on a recourse facility is lower because the provider carries less risk. It does not need to buy credit insurance against your debtors, hold capital against possible losses or spend as long underwriting each customer. Across the market the difference is typically in the region of 0.5% to 1% of turnover, which is also roughly what a bad debt protection add-on costs. For a business putting £1.5m through the facility, that is £7,500 to £15,000 a year. Whether the saving is worth the exposure depends on the quality and spread of your customers.
Who recourse factoring suits
- Businesses with a wide spread of reliable customers
If no single customer is more than 10% to 15% of sales and bad debts have been rare, paying for insolvency cover across the whole ledger may be poor value.
- Businesses selling to large, well-rated customers
Public bodies, PLCs and major groups rarely fail. The risk recourse leaves with you is mainly slow payment, which the collections service handles.
- Businesses where cost is the deciding factor
Thin-margin sectors such as haulage, recruitment and wholesale often choose recourse because the cheaper fee is the difference between a facility that pays for itself and one that does not.
Risks and how to manage them
Recourse factoring leaves one serious exposure: a large customer failing with a large balance outstanding, so that the advance is clawed back at exactly the moment your cash is under pressure from the lost sale. Three practices reduce the risk.
Credit check before you extend terms
Most providers give clients access to credit reports and set an indicative limit for each customer. Declining 60-day terms to a weakly rated customer is cheaper than any form of protection.
Watch concentration
Providers commonly cap funding on any one customer at 25% to 30% of the ledger. If one customer is a third of your sales, its failure would hurt whether or not you factor, and bad debt protection on that customer alone is often available.
Keep disputes out of the ledger
A disputed invoice is not covered by any form of protection. Clear sign-off procedures, accurate purchase order references and prompt credit notes keep disputed invoices to a minimum.
Plan for the worst month, not the average one. Model what happens to your availability if your largest customer's invoices were recoursed in full. If you could not pay wages, protection deserves a closer look.
Worked example: an invoice is recoursed
Illustrative example A £12,000 invoice passes the recourse period
A recruitment agency factors its ledger on a recourse basis with a 90-day recourse period from invoice date, an 85% advance rate and a 1.5% refactoring fee. One client stops paying a £12,000 invoice.
- Invoice value
- £12,000.00
- Advance paid on day 1 (85%)
- £10,200.00
- Availability before recourse
- £26,000.00
- Advance recovered from availability on day 91
- £10,200.00
- Refactoring fee (1.5% of invoice)
- £180.00
- Discount charge accrued over 90 days (illustrative)
- £210.00
- Availability after recourse
- £15,410.00
Figures are illustrative estimates only and do not represent a finance offer. Fees, recourse periods and recovery methods vary by provider and circumstances.
The agency has lost £10,590 of headroom and still has the £12,000 debt to collect. If the client pays six weeks later, the money is credited back. If the client enters administration, the loss is likely to be permanent. On a non-recourse facility with the client within its credit limit, the provider would have carried it.
Recourse versus non-recourse at a glance
| Feature | Recourse factoring | Non-recourse factoring |
|---|---|---|
| Who bears customer insolvency | You | The provider, within approved limits |
| Service fee | Lower | Higher, typically by 0.5% to 1% of turnover |
| Unpaid invoice after the recourse period | Advance recovered from you; refactoring fee may apply | Covered if the debtor is insolvent and within limit; disputes still return to you |
| Customer credit limits | Indicative, used to set funding | Binding, used to set cover |
| Availability | Widely available, including to smaller businesses | More selective; strong debtors required |
Read the full recourse versus non-recourse comparison for a decision framework. The eligibility guide and the factoring calculator can help you test the figures for your own ledger.
Weighing recourse against protection?
Tell us about your customers and their payment habits and we will explain which structures providers are likely to put forward.
Frequently asked questions
What does recourse mean in factoring?
Recourse means the provider has the right to come back to you for an invoice that your customer does not pay. If the invoice is still outstanding at the end of the recourse period, the provider recovers the advance from you, usually from your available funds or by offsetting against new invoices, and the debt returns to your ledger.
How long is the recourse period?
Most UK facilities set it at 90 to 120 days, counted either from the invoice date or from the due date. Longer periods can sometimes be negotiated for sectors with extended terms. Check which start date your agreement uses, because the difference can be 30 or 60 days.
Do I have to pay the money back in cash?
Not usually. The provider's first step is to recover the advance from your availability. If that is not enough it offsets against the next invoices you submit. A cash repayment is normally requested only if the facility is winding down or the shortfall cannot be covered any other way.
What is a refactoring fee?
A refactoring fee, sometimes called a recourse fee, is an additional charge some providers apply to an invoice that passes the recourse period. It is usually a percentage of the invoice value. Not every provider charges one, so ask before you sign.
Why is recourse factoring cheaper than non-recourse?
Because you, not the provider, carry the risk of your customer failing to pay. The provider does not need to buy credit insurance or hold capital against bad debts on your ledger, so it can charge a lower service fee, typically by around 0.5% to 1% of turnover.
Does the provider still chase the invoice after recourse?
Practice varies. Some providers continue to collect on your behalf and credit any later payment back to you. Others hand the invoice back entirely once it is recoursed and leave collection or legal action to you. Your agreement should say which applies.