Recourse Factoring Explained
Important: This page focuses only on how recourse works inside a factoring facility (what it means, how the recourse period works, and what happens if an invoice becomes too old). For factoring options, costs, and an independent quote comparison, see our main Invoice Factoring page.
Recourse factoring is the most common factoring structure in the UK. It suits businesses with a broad customer base, low historical bad debts, and a need for funding and credit control, without paying an extra premium for built-in insolvency protection.
What does "recourse" mean?
In a recourse facility, you receive prepayments against approved invoices, and the provider supplies credit control. However, if a customer does not pay and the invoice exceeds the agreed time limit, the invoice becomes ineligible for funding, and the advance against it is effectively reversed.
This does not normally mean the provider is demanding an immediate cash payment from you. More commonly, it appears as a reduction in your available funding (availability) until the position is covered by customer payments or new invoices are raised (subject to the facility rules).
How the recourse period works
Recourse is driven by a recourse period. The period is defined in your agreement and can be measured in different ways, depending on the provider. A common example is a set number of days from the end of the month in which the invoice was raised.
Once an invoice exceeds the recourse period (i.e., it is too old and still unpaid), it is typically treated as unapproved for funding. The result is that the previously applied advance against that invoice is removed from availability.
A simple example
Assume:
- Invoice value: £100
- Prepayment percentage: 85%
If the invoice is accepted for funding, up to £85 may be made available. If you draw that £85 and the invoice later exceeds the recourse period without being paid, the invoice will usually stop generating funding, and your availability can be reduced by that £85 amount.
In a trading business, ongoing invoices and debtor payments often offset this effect over time, but the practical impact depends on how large the overdue position is and how quickly new eligible invoices are raised.
Why recourse exists
Recourse is the mechanism that limits the provider's risk on unpaid invoices that become too old. It encourages active collections and ensures that the facility remains linked to the current, collectible ledger rather than permanently funding invoices that are unlikely to be paid.
How to reduce recourse risk
- Strong credit control: resolve disputes early and chase slow payers promptly.
- Watch concentration: if one or two customers dominate the ledger, late payment can have a bigger impact on availability.
- Agree sensible terms: recourse period length and rules vary, so it is worth checking the detail before signing.
Non-recourse as an alternative
If you want protection against customer insolvency, you can look at non-recourse (bad debt protection). Under a non-recourse structure, the provider sets credit limits for each customer. If you invoice within those limits and meet the policy rules, insolvency risk can be covered.
Cost note: non-recourse usually adds a separate charge (often called the CPE, "credit protection element"). Pricing varies by provider and debtor quality, so if you want numbers and comparisons, use our main Invoice Factoring page or request an independent quote search.
Need help choosing between recourse and non-recourse? Call Sean on 03330 113622.
