Recourse, Non Recourse, and Liability for Debt

When considering invoice finance as a borrowing option for your business, one of the initial choices is deciding between factoring and discounting. Factoring involves surrendering control of your sales ledger to the lender, where outstanding debts are sold to the factoring company who manages customer payments.

Invoice discounting, a shorter-term option with a similar principle, allows your customers to make payments directly to your business rather than the lender. In this case, you retain control over your own collection procedures.

Once you’ve determined the suitable type of debt finance for your business, the next decision is between an agreement with recourse or a non-recourse arrangement. Let’s delve into each of these options to help you make an informed choice.


Factoring with recourse

Invoice factoring with recourse entails that you remain responsible for unpaid debts from your customers. If the lender faces difficulties in collecting payment, you are obligated to reimburse the cash advance for that specific invoice.

Recourse factoring might appear more cost-effective, but this is because you bear all the risk. Additionally, such an agreement typically means a higher percentage of each invoice is made available, as the lender understands they can legally recover the funds if necessary.

Your preference for assuming this risk depends on the payment history of your customer base. If you are confident in the overall payment reliability of your customers, then factoring with recourse could be the preferable choice.


Non recourse factoring

In a factoring or discounting agreement without recourse, the lender assumes complete liability for the non-payment of your customers’ debts. This arrangement is appropriate if there are concerns about your customers’ ability to pay, either presently or in the future.

The terms of a non-recourse invoice finance agreement reflect the increased risk shouldered by the lender. This involves higher fees and a reduced cash advance amount, meaning you won’t have immediate access to as much cash.

Furthermore, in the case of a genuine dispute or query with an invoice, it would not be covered by the terms of a non-recourse agreement.

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How does a lender assess their level of risk?

A factoring company evaluates its risk level using various parameters:

  • Industry: Certain industries are considered higher risk due to inherent invoicing and payment timescales.
  • Size of Customer Base
  • Monthly Invoice Volume
  • History of Payment Collection and Efficiency of Systems
  • Level of Bad and Doubtful Debts


Compared to other forms of lending, invoice finance is relatively low risk. Opting for non-recourse invoice discounting or factoring increases the risk for the lender, making it challenging to determine the best option for your business.

Vanguard Insolvency can provide the guidance needed to select the right type of factoring or discounting agreement. We’ll advise on whether recourse or non-recourse is optimal and connect you with a variety of factoring companies that may be able to assist.

David Jackson MD
Senior Partner at Vanguard Insolvency Practitioners | Website

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.