What is Non-Recourse Factoring?

The most popular form of invoice financing is “non-recourse” factoring, accounting for roughly 85% of all factoring transactions.

Just like the name implies, the client is not financially obligated to the factoring company in the event an approved and funded invoice is not paid. There is no recourse for unpaid receivables against the client.

The factoring company will generally check credit on account debtors and handle the collection and bookkeeping functions.

This does not remove the client from all possibilities of needing to repay the invoice. The client is still responsible for resolving any disputes regarding the product or service itself.

For example: If the client delivers widgets and, at a later date after the invoice has been factored, those widgets are found faulty, the client is still responsible to make good on the invoice.

Although non-recourse may be the most popular and attractive method of factoring, factoring companies are going to look closely at the paying customer or debtor. Factors underwrite the creditworthiness of the client’s customers more than the client themselves.

Since the weight of the evaluation falls on the payer of the invoice, non-recourse can be particularly attractive to newer companies with little or no significant credit track record.