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• 29 May

  Invoice Finance Bad Debt Protection Against Protracted Default

  Recently, an experienced industry colleague contacted us to highlight a point in one of our articles regarding bad debt protection and invoice finance. The discussion centred on whether there were still providers in the market offering PPA-style "non-recourse" factoring, rather than recourse factoring with bad-debt protection added on.

  See also our main Non-Recourse Bad Debt Protection product page.

  

  Paid Per Agreement Non-Recourse

  One of the key differences is whether a PPA (Paid Per Agreement) model is used for the non-recourse facilities. Where a PPA (Paid Per Agreement) model is used, covered debts that reach an agreed age are automatically paid in accordance with the facility terms. The balance of the invoice value, after any initial prepayment, is credited to the client's account. In some cases, limits may apply, such as first-loss clauses or PPAs covering less than 100 per cent of the debt value.

  This also led us to review the extent to which bad debt protection extends to protracted default rather than being limited solely to customer insolvency. We wanted to establish whether any providers still offered genuine protection against both risks. This means the customer doesn't have to enter into an insolvency arrangement for the debt to be paid out under the agreement.

  Following that conversation, we revisited the market in detail and were pleased to confirm that at least one invoice finance option is currently available, providing protection against both customer insolvency and protracted default through a PPA-style non-recourse facility.

  This is an important distinction because many businesses assume that all non-recourse or bad-debt protection facilities cover all types of unpaid debt. In reality, many facilities only protect against customer insolvency.

  Interestingly, the discussion began when a highly experienced industry professional questioned whether any providers still offered traditional non-recourse. That prompted us to re-examine the market and confirms how specialist and relatively uncommon these facilities have become.

  What Is Protracted Default

  Protracted default refers to situations in which a customer fails to pay within an agreed period, without raising a dispute. When facilities pay out against protracted default, the customer's solvency or insolvency is not a factor in determining whether the debt will be paid under the agreement.

  In standard invoice finance arrangements, this risk usually remains with the client (commonly referred to as "recourse" or "with recourse"). Even where bad-debt protection is included, cover is often limited to customers entering formal insolvency procedures, such as liquidation or administration.

  However, some specialist facilities can also provide cover where a customer has failed to pay after an agreed period, even if they have not become insolvent.

  This can provide an additional level of reassurance for businesses trading on credit terms, particularly during periods of economic uncertainty. However, at the time of writing, we are only aware of a single provider operating on this basis and one other that will occasionally agree to protected default payouts, but only on a case-by-case basis.

  How These Facilities Work

  The facilities we reviewed typically operate using a PPA structure, which stands for "Paid Per Agreement".

  Under this arrangement, an agreed credit period is established for each approved customer account. If the customer has not paid within that timeframe, the provider credits the agreed funds to the client account, assuming the debt falls within the approved credit limit already set for that customer.

  In simple terms, the provider effectively honours the payment after the agreed waiting period has expired.

  This differs significantly from many traditional non-recourse facilities, where businesses may still have to wait for a formal insolvency event before cover applies. This can lead to additional delays before you receive your repayment.

  Understanding The Limits Of Cover

  As with most financial protections, the cover available is not always absolute.

  Some facilities may include:

  • First loss provisions (the client is responsible for the first part of any loss)
  • Partial cover percentages, such as 90 per cent of the value of the debt
  • Specific credit approval requirements
  • Restrictions on certain sectors or debtor profiles

  Despite these limitations, the availability of cover against both insolvency and protracted default is a significant development for businesses seeking stronger protection against unpaid invoices.

  It is also important for businesses to understand exactly what type of protection they currently have in place. Many companies believe they are fully protected, only to discover later that the cover applies solely to insolvency situations.

  Businesses considering these facilities should review terms carefully and seek independent guidance where necessary.

  Why Specialist Broker Knowledge Matters

  This situation also highlights how difficult it can be to locate these facilities within the wider invoice finance market.

  Many providers operate with highly specific criteria, while some products are only available through specialist discussions and market knowledge developed over years within the sector.

  Working with an experienced broker can help businesses:

  • Identify specialist facilities
  • Compare levels of bad debt protection
  • Understand exclusions and first loss provisions
  • Structure facilities around their customer risk profile
  • Access lenders and funders that may not be widely marketed

  At FundInvoice, we regularly help businesses review both standard and specialist funding solutions, including facilities offering enhanced bad-debt protection.

  You can also learn more about broader funding structures on our main Invoice Finance page.

  Why Cash Flow Protection Matters

  Protecting cash flow is one of the most important priorities for growing businesses. Even profitable companies can encounter difficulties if large customer balances remain unpaid for extended periods.

  Facilities that combine funding with broader bad debt protection can help reduce uncertainty and provide additional confidence when offering credit to customers.

  Businesses may also benefit from reviewing their overall debtor management processes alongside funding arrangements. Our Cash Flow Health Check & Fix Kit includes additional guidance on improving cash-flow resilience.

  Finding The Right Invoice Finance Facility

  Not every business will require protection against protracted default, but for some companies, it can be an extremely valuable addition to their funding structure.

  The key point is that these facilities do exist, even if they are not widely discussed across the industry.

  Understanding the difference between insolvency-only cover and broader protracted default protection is essential when assessing invoice finance options. Businesses should ensure they fully understand the level of protection available before entering into any agreement.

  FundInvoice offers independent and free support to businesses reviewing invoice finance facilities, including specialist options involving invoice finance bad debt protection against protracted default. If you are unsure whether your current facility covers insolvency only or also protects against protracted default, we can help you review the available options and obtain competitive quotations.

  FAQ About Non-Recourse Paid Per Agreement Cover Against Protracted Default

  Q1) Does Non-Recourse Invoice Finance Always Cover Protracted Default

  No. Many non-recourse invoice finance facilities only cover customer insolvency. Businesses should check facility terms carefully to confirm exactly what is included.

  Q2) What Is A PPA Structure In Invoice Finance

  PPA stands for Paid Per Agreement. Under these arrangements, the provider agrees to credit funds after a specified period if the customer has still not paid, regardless of the debtor's solvency status.

  Q3) Can Businesses Get 100 Percent Bad Debt Protection

  Some facilities may offer very high levels of protection, but many include first-loss provisions or partial-cover percentages, such as 90 per cent of invoice amounts.

  Q4) Why Use A Broker For Specialist Invoice Finance Facilities

  Specialist brokers can help businesses access lenders and facilities that may not be widely available or marketed directly.

  By Glenn Blackman