- 01 May
How Does An Invoice Finance Recourse Period Work And How Do You Calculate The Recourse Date?
What Is The Recourse Period?
The recourse period is the time after which the invoice finance company withdraws funding against a particular invoice. This applies to both recourse factoring and recourse invoice discounting - facilities are also available without recourse i.e. non recourse which includes bad debt protection.
The principle behind the recourse period is that it normally gives the customer more than enough time to pay the outstanding sales invoice, if its not paid then it is assumed that there is a reason for that and hence the funding against that invoice is withdrawn.
The exact recourse period that an invoice finance company offers varies between providers and may be tailored to your specific business. If your invoices are normally paid quickly the recourse period may be set lower than if you work within an industry that is associated with typically extended credit periods.
How To Calculate The Recourse Date For An Invoice
An average recourse period is typically 90 days from the end of the month in which the invoice was raised (90 days EOM). In some cases the recourse period may work from the due date of the invoice instead (X days DD). With a recourse period of 90 days from EOM the funding will be withdrawn 90 days from the end of the month in which the invoice was raised.
For example, an invoice raised on the 5th March may have credit terms of say 30 days. Therefore it would be due an payable on the 4th April. If the recourse period for that invoice were 90 days EOM then funding would normally eventually be withdrawn if the invoice remained unpaid on the 29th June. So you can see that this example of how to calculate a recourse date from the recourse period and invoice date would give plenty of opportunity for the debtor to pay before the funding is removed.
If the invoice was for £100 and you received an initial payment of say 80% against that invoice i.e. £80, the funded amount i.e. £80 would be deducted from your availability on the date that the invoice recoursed.
What Information Should An Invoice Include
For information on what an invoice must include please see this Governement web page: What An Invoice Must Include