In accounts receivable factoring, the allocation of credit loss risk between the business and the funding provider is defined by recourse provisions. In a standard recourse factoring facility—which represents the vast majority of commercial factoring transactions in the United States—the client remains legally and financially responsible for customer payment. If an account debtor fails to pay an invoice within a specified contractual window (typically 60 to 90 days past due), the seller must repurchase the invoice or swap in an eligible alternative receivable of equal value. In non-recourse factoring, the factor absorbs the financial loss if the account debtor fails to pay exclusively due to documented credit insolvency or bankruptcy, although non-recourse agreements explicitly exclude payment failures caused by customer disputes, defective goods, or contractual counterclaims.
Recourse vs. Non-Recourse Factoring
Recourse factoring is an invoice financing agreement where the seller retains credit risk and must repurchase unpaid invoices, whereas non-recourse factoring transfers the credit default risk of debtor insolvency to the financing factor.
How this term is used
What the law covers
Recourse classification is governed by commercial contracts and Uniform Commercial Code (UCC) Article 9 (§§ 9-109 and 9-607). Whether a transaction is recourse or non-recourse also impacts accounting derecognition under FASB ASC 860: true non-recourse sales allow complete balance-sheet removal, whereas full recourse factoring often requires continuing disclosure as a secured financing. This glossary record provides operational and commercial definitions.
This note is informational. It is not legal, credit, or tax advice. Check the cited source and its date before you rely on it.
Why this matters
Selecting between recourse and non-recourse factoring determines both financing costs and balance-sheet risk. Recourse facilities offer substantially lower discount fees (often 1% to 2% lower), making them ideal for businesses with creditworthy customer bases, while non-recourse facilities provide credit insurance against catastrophic customer insolvency.
FAQ
What does Recourse vs. Non-Recourse Factoring mean?
Recourse factoring is an invoice financing agreement where the seller retains credit risk and must repurchase unpaid invoices, whereas non-recourse factoring transfers the credit default risk of debtor insolvency to the financing factor.
Which official source covers Recourse vs. Non-Recourse Factoring?
The sources at the bottom of this page link the statute, rule, or agency document this entry relies on. Check the date on that source before you rely on it.
What else is Recourse vs. Non-Recourse Factoring called?
Other names used for this term include With recourse, Without recourse, Recourse financing, Non-recourse receivables sale.
Sources
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