What is A Recourse Period?

The recourse period in financial contexts, particularly in invoice factoring and trade finance, refers to the specific time frame during which a factoring company or lender can demand repayment from the business (the client) if the customer (the debtor) fails to pay their invoice. This period is critical as it defines the duration of liability for the business in case of non-payment by the customer.


Key Aspects of the Recourse Period:

  1. Definition:
    • The recourse period is the time frame agreed upon in a factoring or trade finance contract during which the factor or lender can seek repayment from the business if the invoice remains unpaid by the customer.
  2. How It Works:
    • Factoring Agreement: In a typical factoring agreement, a business sells its accounts receivable (invoices) to a factoring company. The factor provides an advance on the invoice value, expecting to collect the payment from the business’s customers.
    • Recourse Clause: If the customer fails to pay the invoice within the agreed period (recourse period), the business is obligated to repay the advance to the factor, often including any fees and interest.
  3. Duration:
    • The length of the recourse period can vary but is typically between 30 to 120 days, depending on the terms of the agreement and the nature of the business. It is agreed upon at the outset of the factoring contract.
  4. Importance:
    • Risk Management: The recourse period helps the factoring company manage its risk. By having a defined period, the factor limits the exposure to bad debts.
    • Cash Flow Planning: For businesses, understanding the recourse period is crucial for cash flow planning. They need to ensure they can cover potential repayments if customers default.
    • Credit Control: The business must maintain robust credit control practices to minimize the risk of non-payment within the recourse period.
  5. Implications:
    • Liability: During the recourse period, the business retains some liability for the factored invoices. If the customers fail to pay, the business must repay the factor.
    • Creditworthiness: The creditworthiness of the business’s customers is crucial. Factors typically assess this before entering into an agreement and may decline to purchase invoices from customers deemed high risk.

Example of a Recourse Period:

A UK-based company sells £100,000 worth of invoices to a factoring company. The factoring agreement includes a recourse period of 90 days. The factor advances 85% of the invoice value (£85,000) to the business.

  • Recourse Period: 90 days

If the customers pay the invoices within 90 days, the factor collects the payments, deducts the factoring fees, and remits the remaining balance to the business. However, if any invoice remains unpaid after 90 days, the business is obligated to repay the £85,000 advance to the factor, plus any additional fees as stipulated in the agreement.



The recourse period is a crucial element in factoring agreements for UK businesses, defining the liability timeframe for unpaid invoices. Understanding this period helps businesses manage cash flow, mitigate risks, and maintain strong credit control practices. By clearly defining the recourse period, both the factoring company and the business can better manage their financial responsibilities and expectations.