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What Is Non-Recourse Factoring?

Last Modified : Jan 23, 2024

Fact-checked by: Bruce Sayer

Factoring accounts receivables to gain immediate access to working capital is a sound business decision. The process of selecting the right factoring company for your business requires proper understanding of the product and careful consideration. Although invoice factoring can be called by many names and varied by terms and conditions, it is generally defined as the selling of accounts receivables at a discount in exchange for immediate cash. Often referred to as accounts receivable factoring, it is a form of short-term financing available to business borrowers that sell on credit terms. From this simple definition, it can be further categorized by its two main types – invoice factoring falls under two categories: recourse factoring or non-recourse factoring. Understanding the difference and selecting the best type to suit your company is one of the first considerations when choosing a factoring facility to fund your business.

Recourse vs Non-Recourse Factoring

Whether here in the US, in Canada, the UK. or elsewhere on the globe, the main category that differentiates between types of factoring is “recourse” vs “non-recourse”. The distinction between these two categories of invoice financing is the level of assumed risk:

Recourse Factoring: a factoring agreement in which a client company sells its invoices to a factoring company with the understanding that if the invoice exceeds the factoring period (usually 60 to 90 days) and remains unpaid for any reason, the client company will buy back the invoice.

Non-Recourse Factoring: a factoring agreement which, if the debtor does not pay the invoice due to an insolvency during the recourse period, the factoring company assumes the risk of non-payment and the client company is not liable for payment.

Whether it is best for your company to choose recourse or non-recourse factoring depends on the strength of your customer base. Except for the protection as described above, both categories provide the same features and benefits:

Recourse factoring vs. non-recourse factoring chart


  • Invoice receivables converted to cash within 24 hours.
  • Funding grows with sales. The more you invoice, the more funds become available.
  • Dedicated account manager.
  • Cost-free A/R management.


  • Easy qualification provides fast onboarding and first funding.
  • Supports growth to expand into new markets, fulfill a big order or take on new customers.
  • Improved cash flow to better manage seasonal fluctuations.
  • Tailored solutions to meet your unique needs.

Having all the same features and benefits, recourse factoring is typically the most cost-effective option. However, for companies that have a high concentration of accounts receivables with a single customer, or customers in volatile industries, non-recourse factoring may be the better option. A full understanding of how invoice factoring works will better prepare you to know if non-recourse factoring is right for your business.

How Does Non-Recourse Factoring Work

Non-recourse factoring is a very simple process for converting account receivables into immediate cash:

  • The factoring company purchases your account receivables by paying an “advance” to your company of up to 90% of the face value of each invoice. The balance is held as a “reserve.”
  • Your factor then pays your company the reserve once your customer pays the factoring company the full value of the invoice, minus the factoring fee.

The factoring company pays the advance within 24 hours of purchasing each invoice by depositing funds directly into your company’s account. The reserve is released and paid to your company in similar fashion upon your customer paying each invoice in full to the factor. Factoring clients can view and monitor all transactions in detail and in real time by accessing their factoring account online. All transactions, balances and reporting capabilities are available through an online client portal for full transparency.

Which Businesses Benefit from Invoice Factoring

Factoring is a commonly used financial transaction but can be referred to by several names. No matter how its labelled, factoring is an ideal funding solution to provide access to working capital for any size company in any stage of development.

Start-ups: Because qualification is based on the credit worthiness of your customers, not your company itself, start-up companies with no credit history are eligible. Companies in early stages gain a large benefit from non-recourse factoring by know that outstanding invoices are paid.

Growing Companies: The more invoices you generate to credit worthy customers, the more funding you receive. This is ideal for growing companies to expand operations, take on new clients and reach new markets.

Companies in Transition: Changing ownership, taking on new partners or refinancing due to a bank recalling its loan is a particularly difficult time for companies. An experienced and reputable factoring company will work with you, your bank, a new partner or new owner to facilitate an easy transition to keep operations running as the financial details are worked out. Being experienced in both commerce and banking, factoring companies are the ideal agent to ensure a smooth transition in timely fashion to meet difficult timelines and funding requirements.

Why Use Invoice Factoring

Business owners face a multitude of challenges and obstacles that stand as barriers to success. Limited access to working capital does not need to be one of them.

Having available funds to meet operational demands is one of the top-of-mind concerns for small to medium-sized business owners. Whether you choose recourse or non-recourse, having an invoice factoring facility creates a regular and dependable source of funding providing easy access to working capital. Working with an invoice factoring company opens the door to multiple avenues to support growth and is the way to go for efficient, easy access to working capital.

For more information about how invoice factoring can simplify your working capital needs, visit


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

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