What is A Non-Recourse Credit Guarantee Fee?

A non-recourse credit guarantee fee is a charge imposed by a factoring company or financial institution when providing a non-recourse factoring arrangement. In a non-recourse factoring agreement, the factor assumes the risk of non-payment by the customer. If the customer fails to pay the invoice, the factoring company cannot seek repayment from the business that sold the invoice. The non-recourse credit guarantee fee compensates the factor for taking on this additional risk.


Key Aspects of a Non-Recourse Credit Guarantee Fee:

  1. Purpose:
    • The fee is designed to cover the risk that the factoring company assumes by guaranteeing the payment of the invoices, even if the customer defaults.
  2. Risk Management:
    • In non-recourse factoring, the factor bears the credit risk associated with the customer’s ability to pay. This fee helps the factoring company manage and mitigate potential losses from non-payment.
  3. Calculation:
    • The fee is typically calculated as a percentage of the invoice value. This percentage can vary based on the perceived risk associated with the customer’s creditworthiness and the industry of the business.
  4. Higher Costs:
    • Non-recourse factoring generally comes with higher fees compared to recourse factoring, where the business retains the risk of non-payment. The higher fees reflect the increased risk borne by the factor.
  5. Inclusion:
    • The non-recourse credit guarantee fee is usually included in the overall factoring fee structure and may be combined with other charges, such as the discount rate and service fees.

Example of a Non-Recourse Credit Guarantee Fee:

A business sells $100,000 worth of invoices to a factoring company under a non-recourse agreement. The factoring company charges a non-recourse credit guarantee fee of 2%.

  • Invoice Amount: $100,000
  • Non-Recourse Credit Guarantee Fee: 2%
  • Fee Calculation: $100,000 × 2% = $2,000

In this scenario, the business would pay a $2,000 fee for the non-recourse credit guarantee, in addition to any other factoring fees.


Advantages of Non-Recourse Factoring:

  1. Risk Mitigation: Protects the business from the risk of customer non-payment, as the factor assumes this risk.
  2. Improved Cash Flow: Provides immediate cash flow without the concern of bad debt.
  3. Credit Protection: Businesses can offer more flexible credit terms to customers without increasing their own credit risk.

Disadvantages of Non-Recourse Factoring:

  1. Higher Costs: The fees associated with non-recourse factoring are typically higher than those for recourse factoring due to the added risk for the factor.
  2. Selective Approval: Factors may be more selective about the invoices they are willing to purchase under non-recourse terms, often requiring strong creditworthiness of the customers.


A non-recourse credit guarantee fee is an important component of non-recourse factoring, compensating the factoring company for taking on the risk of non-payment. While it provides significant benefits in terms of risk mitigation and cash flow stability, businesses should carefully consider the higher costs and ensure that the arrangement aligns with their financial needs and customer credit profiles.

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