The difference between recourse and non-recourse factoring is simple: who carries the bad debt risk. With recourse factoring, you do – it is cheaper but you repay the advance if your customer defaults. With non-recourse factoring, the lender carries it – you keep the advance even if the customer goes insolvent. Most UK invoice factoring is recourse by default. This guide explains both, what each costs, and which fits your business.
- Non-recourse costs 0.3-1% more of turnover - The premium reflects the lender taking on customer default risk
- Recourse charges from 0.5-2% of turnover - Cheapest because the lender’s exposure ends at the recourse period
- 90-95% advance is typical for both - The advance rate is similar; the difference is what happens if the debt goes bad
- Non-recourse is usually insolvency-only - Most UK providers cover formal insolvency only, not slow payers or disputes
- Best for high debtor concentration - Non-recourse is worth the premium when one customer is over 30% of revenue
Recourse vs Non-Recourse Factoring: Key Differences
Recourse factoring means you are liable to repay the advance if your customer fails to pay within the agreed period. The recourse window is typically 90-120 days past the original due date. Non-recourse factoring shifts that risk to the lender. If your customer becomes insolvent or fails to pay, you keep the advance and the lender absorbs the loss.
Recourse is cheaper because the lender carries less risk. Non-recourse costs more but protects your cash flow from a major customer default.
| Factor | Recourse Factoring | Non-Recourse Factoring |
|---|---|---|
| Bad debt risk | You bear it – repay the advance if the customer defaults | Lender bears it – you keep the advance |
| Cost | Lower service charge (0.5-2% of turnover) | Higher service charge (1-3% of turnover) |
| Credit checks | Basic checks on debtors | Rigorous credit assessment per debtor |
| Debtor restrictions | Wider range of debtors accepted | Lender may decline funding to weaker debtors |
| Best for | Strong, diversified debtor base | Concentrated debtor exposure or higher-risk sectors |
| Availability | Standard from all UK providers | Optional add-on, not from all providers |
How Recourse Factoring Works
You sell your invoices to the factor and receive an advance, typically 80-90% of invoice value. The factor collects payment from your customer. If the customer pays, you receive the remaining balance minus fees. If the customer fails to pay within the recourse window (usually 90-120 days past due), the factor “recourses” the invoice back to you. You must repay the advance from your own funds or replace it with another eligible invoice.
The recourse period varies by provider. With a 30-day invoice and a 90-day recourse window, you have a maximum of 120 days from invoice date before the advance is clawed back. The factor will chase your customer during this time, but if collection fails, the financial risk lands on you.
Recourse factoring covers the large majority of UK invoice finance facilities. It is cheaper because the lender’s exposure ends at the recourse period – they are not underwriting long-term customer credit risk. For businesses with reliable customers (government bodies, large corporates, established SMEs), recourse offers the best economics.
How Non-Recourse Factoring Works
The factor takes on the credit risk of your customers. If a debtor becomes insolvent or fails to pay after the agreed period, you keep the advance. The factor writes off the loss. This functions as bad debt insurance built into your factoring facility.
The catch: most UK providers offer “insolvency-only” non-recourse. The bad debt cover only triggers if the customer enters a formal insolvency procedure – liquidation, administration, or a CVA. If the customer simply refuses to pay, goes silent, or disputes the invoice, you remain liable. Full non-recourse covers any non-payment after a fixed period regardless of reason. It is rare and significantly more expensive.
Non-recourse facilities require the factor to credit-check each of your customers. The provider sets credit limits per debtor. If a customer’s creditworthiness deteriorates, the factor may reduce or withdraw the limit. This makes non-recourse less flexible than recourse for businesses with a rapidly changing customer base.
“Non-recourse” rarely means what it sounds like. Always confirm whether your facility covers (a) only formal insolvency, or (b) any non-payment after X days regardless of reason. The difference can be tens of thousands of pounds in real-world losses. Most UK providers offer (a). Few offer (b).
Worked Cost Example: Recourse vs Non-Recourse on £500K Turnover
Most providers price as a percentage of turnover. Here’s what the difference looks like in cash terms for a business with £500K annual turnover:
| Item | Recourse | Non-Recourse | Difference |
|---|---|---|---|
| Service charge (% of turnover) | 1.25% | 2.0% | +0.75% |
| Annual service charge | £6,250 | £10,000 | +£3,750 |
| Discount/financing rate (Bank Base + 2.5%) | 7.5% | 7.5% | Same |
| Total annual finance cost | ~£25,000 | ~£28,750 | +£3,750/year |
| Bad debt protection coverage | None – you absorb defaults | Up to 90% of insolvent debts | – |
The £3,750 premium is small if you ever lose £20K-£50K to a single customer insolvency. It’s a poor trade if your debtor base is rock-solid and historically defaults under 0.5% of turnover.
When to Choose Each Type
The decision rests on three factors: debtor concentration, sector risk, and historical bad debt experience.
Choose recourse factoring when:
- Your customer base is diversified – no single debtor over 20% of revenue
- Your customers are established with strong credit profiles
- You already have separate trade credit insurance
- Your historical bad debt sits under 1-2% of turnover
- You want the lowest possible cost for your invoice finance facility
Choose non-recourse factoring when:
- You have high debtor concentration – one or two customers over 30% of revenue
- You operate in a cyclical or higher-risk sector (construction, retail, hospitality, recruitment)
- You do not have separate trade credit insurance
- Your business cannot absorb a single major customer default without a cash crisis
- Your bad debt sits above 2% of turnover historically
Construction and recruitment businesses frequently opt for non-recourse because of the higher insolvency rates in those sectors. The Insolvency Service’s 2026 figures show construction insolvencies running at roughly 18% of total UK corporate insolvencies – more than any other sector.
UK Providers Offering Non-Recourse Factoring
Most major UK invoice finance providers offer non-recourse as an optional add-on. Bibby Financial Services offers Bad Debt Protection on factoring and discounting facilities. Novuna Business Cash Flow offers Credit Protection covering up to 90% of eligible debts. Close Brothers offers non-recourse ABL facilities. Skipton Business Finance offers Bad Debt Protection as an add-on. Always confirm whether “non-recourse” means insolvency-only or full non-payment protection.
| Provider | Non-Recourse Available | Coverage Type | Min. Turnover |
|---|---|---|---|
| Bibby Financial Services | Yes (Bad Debt Protection) | Insolvency protection | No minimum |
| Novuna Business Cash Flow | Yes (Credit Protection) | Up to 90% of eligible debts | £50,000 |
| Close Brothers | Yes (ABL non-recourse) | Insolvency protection | £500,000 |
| Skipton Business Finance | Yes (Bad Debt Protection) | Insolvency protection | Contact for details |
| NatWest FacFlow | Not standard | N/A | £300,000 |
| Kriya | Not offered | Selective discounting only | £100,000 |
Common Pitfalls to Avoid
Three traps catch most businesses moving from recourse to non-recourse:
1. Assuming “non-recourse” means full coverage. Most UK facilities cover formal insolvency only. A customer who simply refuses to pay – or disputes the invoice – is not covered. Read the bad debt protection clause carefully before signing.
2. Ignoring credit limit cuts. Under non-recourse, the lender controls per-debtor credit limits. If they cut a limit because they think your customer’s risk has worsened, you lose the ability to fund new invoices to that customer. Some businesses lose 30-40% of their funded invoices in a single quarter when limits get squeezed.
3. Buying non-recourse for cheap reasons. If you have strong customers and 0% historical bad debt, the 0.3-1% premium is dead money. Run your last 3 years of bad debt as a percentage of turnover before deciding. If it’s under the premium, recourse is cheaper.
Standalone trade credit insurance often beats non-recourse factoring on price for businesses with diversified debtor books. Cover from Atradius, Coface, or Allianz Trade typically costs 0.1-0.4% of insured turnover – half the non-recourse premium. The trade-off: separate underwriting and claims process.
Our Verdict
For most established UK SMEs with diversified, creditworthy customers, recourse factoring offers the best economics. Pay the lower fee, monitor your debtor risk, and only consider non-recourse if your concentration changes or you enter a higher-risk sector.
For businesses with concentrated exposure or operating in higher-default sectors, the 0.3-1% premium for non-recourse is cheap insurance. A single major customer insolvency without cover can wipe out a year of profit.
Related Invoice Finance Guides
- What Is Invoice Factoring? – the full factoring process explained
- Invoice Discounting UK – confidential alternative where you keep credit control
- Best Invoice Finance Companies UK 2026 – compare providers
- Invoice Finance Rates 2026 – understand the cost difference
- Bibby Financial Services Review – largest independent UK factor
For a wider view of funding options, see our complete guide to business finance.
