Recourse Factoring
An invoice factoring arrangement in which the business retains liability for invoices that are not paid by its customers.
Recourse factoring is the most common form of invoice factoring in the UK. Under a recourse arrangement, if your customer fails to pay the assigned invoice within a specified period, typically 90 to 120 days from the invoice date, the factor will charge the invoice back to you. You are responsible for repaying the advance, which means the bad debt risk remains with your business.
Because the factor is not taking on credit risk in a recourse arrangement, the facility is typically less expensive than non-recourse factoring. Most factoring facilities in the UK are structured on a recourse basis, with non-recourse credit protection available as an optional add-on at additional cost.
Under recourse factoring, it is particularly important to maintain good credit control practices, conduct credit checks on new customers, and set appropriate credit limits. Some businesses add credit insurance to their recourse facility to protect against specific high-value or high-risk debtors.
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