Recourse vs. Non-Recourse Factoring

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.