What is the difference between recourse and non-recourse factoring and how do both methods of factoring work?

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What is recourse factoring?

Resource factoring is a form of finance where a company sells its invoices to a factoring company. The factor pays the company a percentage of their cash value and then chases up payment of the invoices on behalf of the company.

Once full payment is received the factor reimburses the company with the remaining balance of the invoice and this is all done for a fee. The agreement with recourse factoring finance is that if an invoice is unpaid or paid late then the Company will have to absorb the costs not the factor and buy back the invoice.

What is non-recourse factoring?

Non-Recourse factoring is a form of finance where a company sells its invoices to a factor and receives a percentage of the cash value from them. The factor will then chase up the invoices and once full payment is received will reimburse the company with the remaining balance of the invoice.

The agreement with non-recourse factoring is that, within certain conditions, if the payments are late or unpaid then the Factor absorbs the costs, the company does not have to worry about debt created by unpaid invoices.

What are the advantages and disadvantages of Recourse Factoring?

Advantages of Recourse Factoring:

  • It's a cheaper form of finance than non-recourse factoring
  • Less stringent credit checks made on the invoice clients than with non-recourse factoring
  • The approval process is likely to be quick
  • Most of the invoices value is paid to the company

Disadvantages to Recourse factoring: 

  • The company, not the factor, is liable for any unpaid invoices.
  • If the company can’t afford the debt created by unpaid invoices then further action can be taken by the factoring company to retrieve it

What are the advantages and disadvantages of non-recourse factoring?

Non-recourse factoring advantages:

  • It can be a risk free form of finance
  • Beneficial for companies whose main business comes from a small number of customers

Non-recourse factoring disadvantages:

  • The cost of this type of finance can be high
  • The terms by which unpaid invoices will be covered by the factoring company can be narrow so under certain circumstances the company may still be liable for unpaid debt
  • It can be difficult to secure non-recourse factoring finance as the factor takes on more risk so applications can be lengthy and thorough

What are the key differences between recourse and non-recourse factoring?

The differences between recourse and non-recourse factoring are essentially who becomes liable for debt created by the non payment or late payment of invoices.

With recourse factoring finance if an invoice is unpaid or paid late to the factor then it is up to the company to buy back the invoices and either settle the debt or chase up payment with its customers.

With non-recourse factoring finance if an invoice is unpaid or paid late to the factor it is the factoring company who absorbs the debt.

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"The communication and support has been outstanding. Providing me with all the information I needed regarding new clients coming onto our books. The system they use is so user friendly and the drawdown payments are very efficient in the fast moving world of temporary payroll."

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Recourse and non-recourse factoring have been revolutionised with our digital onboarding process

Why choose Novuna Business Cash Flow

6 month trial period

A 6 month trial period so you can be sure the product is right for you, followed by a 6 month rolling contract – we don’t tie our clients in for long periods.

Digital onboarding

We are the first in the market to offer a digital onboarding process and have been leading the way with our digital capabilities allowing clients to sign up within 24 hours from the first appointment.

Client trust account

Once you become a client you will be given your own trust account, meaning you will get same day availability on your funds. You can also view all of your invoices and payments online at a time suitable to you, 24/7.

No uncleared effects

We have heavily invested in our digital capabilities. This includes the auto allocation of payments using Artificial Intelligence. Ultimately this advance in technology means that our clients access money quicker as well as saving money on interest charges due to auto allocation.

Simple pricing

We aim to make the process of Cash Flow finance as simple and straightforward as possible. Our pricing is very straightforward to understand. For a no obligation quote or an informal chat you can call our friendly team today on 0808 250 0859.

Award winning service

We offer award-winning client services and individual Relationship Managers who are on the other end of the phone or out in the field to visit you in person.

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Alternative invoice factoring products from Novuna Business Cash Flow


Spot Factoring

Spot factoring is a way for a business to access funds by selling unpaid invoices to a 3rd party, a spot factoring company, on a one off basis in order to receive payment quicker.


Reverse Factoring

Reverse-factoring is a financing option where a 3rd party financial provider finances the supplier on behalf of the buyerThe process involves the supplier, the buyer and the finance provider .The supplier sells the buyer’s unpaid invoice to the finance provider and receives the cash quickly, the buyer also gets longer to pay for its goods.


Account Receivable Factoring

Account receivable factoring provides businesses with an option to finance their venture without taking out a loan. This is a type of debtor finance where SMEs sell its invoices to a third party at a discount, in order to provide an immediate cash injection. There are many reasons why a business may factor an invoice, including increasing cash flow and mitigating credit risk.


Debt Factoring

Debt factoring is a finance facility provided by a debt factoring lender to help businesses leverage their acccounts receivable enabling them to instantly inject cash into the business. The debt factoring company pays the business a percentage of the total amount charged to the client and usually takes full responsibility for collecting the payment from the buyer.

Want to learn more about how you can boost your businesses cash flow?

Our Cash Flow Resource Hub has been set up to help SME's with cash flow finance advice, tips and resources to help with their cash flow position.

We explore ways you can begin improving your cash flow situation and start getting your business on track to positive cash flow.

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