Can't Repay Bounce Back Loan? Get Free Advice

Require Immediate Support? Free Director Helpline: 0800 644 6080

Real Business Rescue

Free Director Helpline: 0800 644 6080

Understanding the Difference between Recourse and Non Recourse Invoice Discounting and Financing

Share:

Recourse, Non Recourse, and Liability for Debt

When considering invoice finance as a borrowing option for your business, one of the first decisions you’ll need to make is whether factoring or discounting is more suitable. Factoring involves handing over control of your sales ledger to the lender. You sell outstanding debts to the factoring company, who collect payments from your customers.

Invoice discounting is a shorter-term option with a similar principle, but your customers continue to make payment to your own business rather than the lender, and you control your own collection procedures.

Once you’ve decided which type of debt finance is right for your business, you’ll need to choose between an agreement with recourse, or a non-recourse arrangement. So let’s look more closely at each of these options so you have a better idea of which one you should choose.

Received a Bounce Back Loan?

Don't Worry - There are thousands of other company directors going through the same process. No matter what position you are in and need looking for options, speak to a member of the Real Business Rescue team. It's Free & Confidential.
The team are available now -  0800 644 6080

Factoring with recourse

Invoice factoring with recourse means that you remain liable for debts not paid by your customers. If the lender is unable to collect payment, you’ll be required to refund the cash advance for that particular invoice.

You may find that recourse factoring is cheaper than the alternative, but this is because you are taking on all the risk. Additionally, a factoring agreement with recourse usually means that a higher percentage of each invoice is made available because the lender knows they can legally reclaim the money if necessary.

Whether or not you prefer to take on this risk depends on the past payment history of your customer base. If you are confident that customers will pay in the main, then factoring with recourse could be the best option.

Non recourse factoring

If a lender is offering you a factoring or discounting agreement without recourse, they are accepting full liability for non-payment of your customers’ debts. This arrangement would be suitable if there is an element of doubt about their ability to pay, either now or in the future.

The terms of a non recourse invoice finance agreement incorporate the additional risk taken on by the lender. These include higher fees and a lower cash amount advanced, so you wouldn’t have immediate access to as much cash.

Additionally, if there is a genuine dispute or query with an invoice, it wouldn’t be covered by the terms of a non recourse agreement.

How does a lender assess their level of risk?

Various parameters are used by a factoring company to assess their level of risk:

  • Industry in which you operate – some are viewed as greater risk because of inherent invoicing and payment timescales
  • Size of your customer base
  • Number of invoices sent out each month
  • History of payment collection, and efficiency of your systems
  • Level of bad and doubtful debts

Need to speak to someone?

If your company is struggling with unmanageable debts, squeezed cash flow, or an uncertain future, you are far from alone. We speak to company directors just like you every single day, and we are here to give you the help and advice you need.
Call our team today on 0800 644 6080

When compared with other forms of lending, invoice finance is relatively low risk. Choosing non recourse invoice discounting or factoring increases the risk for the lender, but it can be difficult to know if this is the best option for your business.

Real Business Rescue can offer the advice you need to ensure the right type of factoring or discounting agreement is chosen. We’ll let you know if recourse or non recourse is the best, and put you in touch with a range of factoring companies who may be able to help.

Request a Quotation for Finance

GBP Currency Icon
GBP Currency Icon
GBP Currency Icon
Here at Real Business Rescue we take your privacy seriously and will only use your personal information to contact you with regards to your enquiry. We will not use your information for marketing purposes. See PRIVACY POLICY
Dots
Free download

Free Insolvency Report

Claim Your Free Business Review

Simply search your Limited Company Name or Company Number

Next Steps

We provide free confidential advice with absolutely no obligation.
Our expert and non-judgemental team are ready to assist directors and stakeholders today.