Recourse vs non-recourse

Recourse is the default position for most UK invoice finance facilities. After an agreed grace period — commonly 90 days past the invoice due date — any unpaid invoice is recoursed back to the business. The lender deducts the previously advanced amount from the available drawing pool, and the business is left to pursue the customer directly. Recourse facilities are cheaper because the lender is not taking debtor-default risk.

Non-recourse facilities embed credit protection so that the lender — usually via a bundled bad-debt protection product or whole-turnover credit insurance — covers a defined percentage of bad debt on approved debtors. Coverage is typically 90 per cent of the insured invoice value if the debtor becomes formally insolvent, subject to credit limits set per debtor. Non-recourse is materially more expensive, often adding 0.4 to 0.8 percentage points to the service fee.

The right choice depends on debtor concentration and risk appetite. A business with a small number of large customers is exposed to single-debtor failure and may value non-recourse despite the cost. A business with a long tail of small accounts may find that recourse plus selective bad-debt protection on the largest debtors is cheaper overall.