A business man going over a non-recourse factoring agreement on a tablet with a business owner

Frequently Asked Questions (FAQs) When Shopping For Non-Recourse Factoring

Last Modified : Jan 23, 2024

Fact-checked by: Bruce Sayer

As high-interest rates and an uncertain economy push more businesses into financial distress, debt defaults by US companies have surged 176% in the first eight months of 2023 from the year-earlier period. S&P Global Market Intelligence recorded 459 bankruptcy filings in 2023 as of Aug. 31, more than the full-year totals for 2021 and 2022. The year-to-date figure is also higher than the comparable total for all but two of the prior 13 years.

The fallout from business closures is more widespread than only impacting these bankrupt operations. Their closures can significantly impact on the businesses they bought goods or services from. As a result, B2B businesses now need to be aware of the financial health of their customers and be prepared for the possibility of payment default on invoice receivables issued to customers now facing bankruptcy.

For many companies, the go-to solution for fast, reliable business financing over the past few years has been invoice factoring – the selling of invoice receivables at a discount to a factoring company in exchange for immediate payment.  There are two main types of invoice factoring – recourse and non-recourse. Recourse factoring is considered the standard form of factoring and is the most used as it is the lower cost of the two options. However, with this type of factoring, your company is responsible for buying back any invoices that the factoring company cannot collect payment on. As business closures continue to rise, users of recourse factoring face an increasing risk of bad debt. Fortunately, non-recourse factoring provides a better option for risk protection from bad debt by adding a layer of protection against non-payment due to customer bankruptcy.

In a non-recourse factoring agreement, the factoring company assumes the credit risk for the invoices it purchases. This means that if the customer doesn’t pay the invoice due to bankruptcy, the responsibility for the loss falls on the factor, not the business that sold the invoices. It’s an assurance that you will get paid despite your customers’ vulnerability to bankruptcy.

However, like most financing options, there are essential details that you need to know. Before signing an invoice factoring agreement, understand the difference between recourse and non-recourse factoring and how non-recourse factoring could offer the additional receivables protection you are looking for. The following FAQs are presented to assist businesses in conducting their due diligence when considering stepping up to the non-recourse option.

Frequently Asked Questions (FAQs)

1. What is the difference between recourse and non-recourse factoring?

Recourse and non-recourse factoring differ significantly regarding risk and responsibility for unpaid invoices.

Recourse Factoring: The company selling the invoices retains the risk for any invoices not paid in full to the factoring company. Suppose a business’s customer does not pay the invoice within the recourse period (typically 90 days). In that case, the business is responsible for buying back the unpaid invoices from the factoring company or replacing them with other invoices of equal value. If your customer goes bankrupt, you still own the invoice.

Non-Recourse Factoring: The factoring company assumes the risk of non-payment due to bankruptcy. If an invoice is not paid because the business’s customer is insolvent, the business is not required to repurchase or replace the invoice – the burden falls on the factoring company. So you still get paid!

2. What are the main advantages and disadvantages of these two factoring options?

Recourse Factoring: Because the factoring company is shielded from the risk of non-payment, the fees for recourse factoring are generally lower than those for non-recourse factoring, and it is typically easier to qualify for. However, this approach requires the company to have a robust credit management system to minimize the risk of non-payment.

Non-recourse Factoring: The primary benefit of non-recourse factoring is removing the risk associated with unpaid invoices due to bankruptcy. However, due to the higher risk assumed by the factoring company, non-recourse factoring typically comes with higher fees. Companies that have high levels of customer credit risk might find non-recourse factoring to be a more suitable option, even with the higher fees involved.

3. How do I get non-recourse factoring?

Obtaining non-recourse factoring involves a series of steps. Here’s how you can go about it:

Assess Your Needs: Evaluate your company’s risk associated with customer non-payment to determine whether non-recourse factoring is appropriate for your business.

Research Factoring Companies: Look for reputable factoring companies that specialize in your industry and offer non-recourse options. Online reviews, industry publications, and recommendations from business contacts can be good starting points. Not all factoring companies offer the same non-recourse factoring guarantees so it is important to do the research and speak to a rep when possible.

Review Qualifications: When you are reviewing the options available, find out their qualification requirements and make sure you meet their criteria for non-recourse factoring. This often includes having a certain volume of invoices and customers with good credit histories. Often a factor will cover a maximum invoice size and base your cost percentage on your history of aging accounts receivable and anticipated volume for the year.

Initial Contact and Application: Reach out to potential factoring companies to discuss your needs and to assess how well each factor’s terms, conditions, and service features align with company’s funding requirements. Once you have selected your candidate of choice, start the application process. This usually involves filling out an application and providing necessary documentation, such as invoices, customer lists, and financial statements.

Due Diligence: The factoring company will perform a credit check on your customers to assess their creditworthiness.

Agreement Review: If you pass the due diligence phase, you’ll receive a Factoring Agreement outlining the terms, fees, and conditions. Pay special attention to the terms that specify the conditions under which the factoring is considered non-recourse. If you would like to learn more about the terms, fees and conditions, have a look at our blog

Sign and Initiate: Once you agree with the terms, you’ll sign the contract and can start submitting invoices for factoring.

Ongoing Relationship: The best invoice factoring companies are national leaders, recognized for their reputation for superior customer service and reliable funding. Leaders, such as eCapital, one of the nation’s fastest growing alternative lenders specialize in flexible financing options including non-recourse invoice factoring and place high value on optimizing ongoing customer relationships. Develop and maintain ongoing relations with your account manager to streamline services and ensure reliable funding.

4. When should I get non-recourse factoring?

Opting for non-recourse factoring can be a strategic decision based on various factors like your industry, customer payment behavior, and your company’s financial stability. Here are some situations where non-recourse factoring may be beneficial for you:

High Customer Credit Risk: If you’re dealing with customers who may decline into financial instability, non-recourse factoring can offer you protection against non-payment due to insolvency.

Limited Cash Reserves: If your company has limited cash reserves, absorbing the cost of unpaid invoices can be a financial strain. In such cases, transferring the risk to a factoring company may be advantageous. Non-recourse factoring helps operations to continue without having to worry about receiving payment from customers facing bankruptcy.

New or Expanding Businesses: Start-ups and businesses in expansion mode may not have the in-house capabilities to manage credit risk effectively. Non-recourse factoring can help serve as a risk management tool.

Complex Sales Cycles: Industries with long sales cycles or complicated delivery frameworks often face payment delays. Non-recourse factoring can provide an added safety net to minimize risk.

Variable Customer Base: If you deal with a diverse set of customers, especially those from different countries with varying credit standards, non-recourse factoring can make things easier to stay on top of your receivables.

Seasonal Businesses: Companies with seasonal demand spikes may find it challenging to manage cash flow effectively throughout the year. Non-recourse factoring helps to fill cash flow gaps and mitigate financial instability caused by unpaid invoices.

Competitive Industry: In industries where competition is fierce, offering lenient credit terms to customers may be necessary to retain business. However, this increases the risk of late or defaulted payments. Non-recourse factoring can help balance competitive credit terms with financial stability.

Focus on Core Activities: If you prefer to focus on your core business activities rather than on accounts receivable management and debt collection, non-recourse factoring allows you to off load these responsibilities to the factoring company.

Uncertain Economic Conditions: During economic downturns or periods of uncertainty, the risk of invoice defaults can increase. Non-recourse factoring provides a cushion against these external financial pressures.

Regulatory Changes: If you are in an industry that is subject to sudden regulatory changes that might impact your customers’ financial stability, non-recourse factoring can offer an additional layer of security.


Understanding the difference between recourse and non-recourse factoring is crucial for businesses considering invoice factoring as a financial strategy. Keep in mind that non-recourse factoring generally comes with higher fees due to the added risk taken on by the factoring company. Therefore, it’s crucial to weigh the costs against the benefits to determine if this is the right option for your business.

Consult with a financial specialist, carefully research, and choose the right factoring company to best meet your business needs. Be sure to understand the terms of the non-recourse factoring agreement before you sign. By managing the arrangement well, and maintaining a good working relationship with your lender, your business can successfully utilize non-recourse factoring to enhance cash flow while minimizing associated risks.

Key Takeaways

  • The rate of bankruptcies by US companies has surged 176% in the first eight months of 2023 from the year-earlier period.
  • B2B businesses need to be aware of the financial health of their customers and be prepared for the possibility of payment default on invoice receivables due to bankruptcies.
  • Businesses considering invoice factoring as a financial strategy need to understand the difference between recourse and non-recourse factoring.
  • A non-recourse factoring agreement provides bad debt protection, meaning that the responsibility for losses falls on the factor if customers don’t pay invoices due to bankruptcy.
  • It’s crucial to weigh the costs of non-recourse factoring against the benefits to determine if this is the right option for your business.
  • By managing the arrangement well, your business can successfully utilize non-recourse factoring to enhance cash flow while minimizing bad debt risks.
  • Be sure to understand the terms of the non-recourse factoring agreement before you sign.


ABOUT eCapital

Since 2006, eCapital has been on a mission to change the way small to medium sized businesses access the funding they need to reach their goals. We know that to survive and thrive, businesses need financial flexibility to quickly respond to challenges and take advantage of opportunities, all in real time. Companies today need innovation guided by experience to unlock the potential of their assets to give better, faster access to the capital they require.

We’ve answered the call and have built a team of over 600 experts in asset evaluation, batch processing, customer support and fintech solutions. Together, we have created a funding model that features rapid approvals and processing, 24/7 access to funds and the freedom to use the money wherever and whenever it’s needed. This is the future of business funding, and it’s available today, at eCapital.

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eCapital Corp. is committed to supporting small and middle-market companies in the United States, Canada, and the UK by accelerating their access to capital through financial solutions like invoice factoring, factoring lines of credit, asset-based lending and equipment refinancing. Headquartered in Miami, Florida, eCapital is an innovative leader in providing flexible, customized cash flow to businesses. For more information about eCapital, visit eCapital.com.

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