Non-Recourse Factoring: The Absolute Bad Debt Solution In Factoring

Factoring involves a business selling its invoices to a factoring company. The factoring company pays up to 80-90% of the invoice to your business. They retain the remaining 10% as the factoring fee.

Factoring companies provide:

  • Finance
  • Debt collection.
  • Ledger management services.

Factoring is commonly used to improve the cash flow of your business and reduce administration overheads. Non-recourse factoring is when a factoring company purchases a certain percentage of your current invoices. The factoring company takes over all your rights to pursue the customer for payment, and they are responsible for the collection of the invoice. When the invoice is paid back by the client, you will receive the remaining amount, less the factoring fee. There are two options of non-recourse factoring:

  • You have an obligation identified with the calculated receipt dependent on the indebtedness of your client. If your customer doesn’t pay the invoice within the agreed amount of time due to bankruptcy, you don’t have to pay back the advance you received.
  • The factoring company assumes any credit risk. If your customer doesn’t pay their invoice on time and fails to file for bankruptcy, the factor will assume the entire debt, even if it becomes uncollectible.

The most advantageous feature of non-recourse factoring is, the factoring company absorbs any losses when a customer fails to make their payment or pay late. The downside is that most non-recourse companies only absorb the loss due to non-payment when the customer is bankrupt during the factoring period. This therefore means, the factoring company uses account receivables as insurance for the factoring client. Non-recourse factoring costs more compared to recourse factoring contracts, where the factoring customer is charged for unpaid invoices. The company does not absorb the loss for:

  • invoices disputed, regardless of the reason.
  • invoices where the client has broken their agreement with the factoring company.
  • invoices where the factoring client has worsened the credit problem.
  • invoices offset by other amounts because of the account debtor.
  • invoices where the client sends the invoice to the customer rather than the factoring company doing so.

Non-recourse factoring is most suitable when taking on a new client or a client whose financial base is uncertain, or when a business is looking to offload their receivables due to deadline matters and targets especially during year-end. The company can pay extra to a non-recourse factoring company for complete protection from such losses in case their client goes bankrupt/ insolvent.


  • High level of bad debt protection.

The factoring company contacts the client and collects payment directly and absorbs any loss due to non-payment by the client due to insolvency.

  • Improves the cash flow of your business.

 The factoring company offers the finances to run the business and settle expenses ensuring continuous cash flow in the company.

  • Flexibility with non-recourse invoice factoring.

The company chooses which invoices to factor in and when to factor them. This is a huge advantage, as each business has different financial needs.

  • Debt elimination.

With factoring, you don’t need to wait for your clients to pay back your money, for you to efficiently run your business. Invoice factoring prevents your business from taking loans since it’s a much better solution of receiving cash quickly.

  • Relatively easy to obtain.

The factoring company looks at the client’s credit to determine if you qualify to be funded, even if your company doesn’t have good credit.

  • Non-recourse factoring brings clarity and strength to your balance sheet.

The receivable is eliminated from your monetary record and money is added as a resource. You have no further responsibility to monitor the debt or collect it.


  • Programs may be slightly more expensive since the factoring company assumes the credit risk associated with bad debts.
  • Credit lines may be smaller.
  • Fewer customers may be approved for factoring, especially those with poor past payment performance as the factoring company conducts a thorough audit process checking all financial systems.
  • Factors monitor the portfolio very carefully hence it is harder to qualify for non-recourse factoring services. The majority of the genuine non-response arrangements are simply made accessible to huge, global organizations with a program of huge indebted individuals who have strong credit..


Having discussed the important aspects of non-recourse factoring, one can decide to carry forward with this type of factoring. It is important to obtain a company that offers the best services with special attention to rates, terms and conditions, customer reliability, and the financial capability of the company. Non-recourse factoring is associated with a few downsides like only a few customers can be approved for factoring.