Non-Recourse vs Recourse Invoice Factoring: Which Is Better?

Last Updated on February 20, 2026 by Admin

If you run a business in the UK, you already know the slightly surreal feeling of doing the work… sending the invoice… and then waiting. And waiting. Meanwhile, payroll doesn’t wait politely, VAT deadlines don’t care, and your supplier certainly won’t accept “the client will pay soon” as currency.

That’s exactly why invoice factoring has become such a lifeline for SMEs and startups. But here’s the question that trips people up:

Do you choose recourse or non-recourse factoring?

They sound similar, but the difference can seriously affect your risk, cost, and peace of mind.

Let’s break it down like a real business owner would.

What Is Invoice Factoring (and Why Does It Matter)?

Invoice factoring is a type of funding where you sell your unpaid invoices to a factoring company in exchange for fast cash, usually within 24 hours.

Instead of chasing payments, you unlock the money tied up in your receivables and keep your cash flow moving.

It’s often used alongside broader invoice finance solutions, especially for growing businesses juggling big contracts and slow-paying customers.

Recourse Invoice Factoring: Lower Cost, Higher Responsibility

With recourse factoring, you get the cash upfront, but you still carry the risk if your customer doesn’t pay.

So if an invoice goes unpaid after a set period, you may have to buy it back or replace it.

Think of it like lending your mate a tenner… but knowing you’ll be covering it if they “forget” to pay you back.

Recourse factoring works well if:

• Your customers are reliable payers
• You want lower fees
• You’re comfortable managing the credit risk

Many UK SMEs choose this option because it’s often the most affordable route into invoice finance.

Non-Recourse Invoice Factoring: Protection Against Bad Debt

Now, non-recourse invoice factoring offers something extra: protection.

If your customer becomes insolvent and can’t pay, the factoring provider absorbs the loss (within the agreed terms).

That’s a bit like having insurance built into your funding.

For businesses trading with new clients, overseas buyers, or sectors where insolvency risk is real, this can feel like sleeping better at night.

Non-recourse factoring suits you if:

• You want bad debt protection
• You’re scaling quickly and taking on bigger clients
• You’d rather reduce financial uncertainty

It’s especially popular with startups who can’t afford a nasty surprise.

Non-Recourse vs Recourse Invoice Factoring: Key Differences

Cost

Recourse is typically cheaper. Non-recourse comes with higher fees because the provider is taking on more risk.

Risk

Recourse keeps the risk with you. Non-recourse shifts specific risks away from your business.

Customer Profile

If your clients are established and stable, recourse may be fine. If they’re unpredictable, non-recourse might save your skin.

Flexibility

Both can be part of wider funding options, including invoice discounting, depending on how much control you want over collections.

Which Type of Invoice Factoring Is Better?

Honestly? It depends on what keeps you up at 2am.

If your business runs on dependable customers and you want the most cost-effective cash flow support, recourse factoring can be a smart move.

If you’re dealing with higher-risk industries or simply want extra protection, non-recourse factoring offers a safety net that feels priceless when things go wrong.

A good factoring partner will talk you through both options properly, not push you into a box.

And yes, the right choice can make your business feel lighter overnight.

Ready to Strengthen Your Cash Flow?

Choosing between recourse and non-recourse invoice factoring isn’t just a finance decision. It’s a confidence decision.

If you’d like support exploring the best fit for your business, Best Factoring can help you compare options across invoice finance, Invoice Factoring, and even invoice discounting, with funding built around your needs.

Get in touch today and stop letting unpaid invoices call the shots.

FAQs

1. What is the main difference between recourse and non-recourse invoice factoring?

Ans. Recourse means you remain responsible if the customer doesn’t pay. Non-recourse provides protection if the customer becomes insolvent.

2. Is non-recourse invoice factoring completely risk-free?

Ans. Not entirely. It usually covers insolvency, not disputes or late payment for other reasons.

3. Which option is cheaper?

Ans. Recourse invoice factoring is typically more affordable because the provider takes on less risk.

4. Can startups use invoice factoring?

Ans. Absolutely. Many startups use invoice finance to improve cash flow while growing.

5. Is invoice discounting the same as invoice factoring?

Ans. Not quite. Invoice discounting usually allows you to manage collections yourself, while factoring includes collection support.