International Factoring: Recourse Vs. Non-Recourse

Invoice factoring is a great way for businesses to access working capital quickly. As an exporter, however, it’s important to know which type of invoice factoring best fits your business needs.  

Among the factoring options available to exporters are recourse and non-recourse factoring. Below, we’ll break down the similarities and differences to help you make an informed decision.

What is Recourse Factoring?

With recourse factoring, your business assumes the risk of unpaid invoices rather than the factoring provider. Of the two main factoring structures available, recourse factoring is generally the most widely used.

When your business uses a factor under recourse terms, you'll ship your goods and issue an invoice. Then, the factoring company will purchase your outstanding invoices and advance a large percentage of the invoice total (about 80 – 90%) up front.

You’ll then receive the remaining balance once the customer pays the invoice, minus a small fee to the factoring company. If the customer does not pay the invoice, however, your business is responsible for the debt. This gives the factoring company the right to recourse, meaning that you will have to buy back invoices or replace the unpaid invoice with another eligible receivable.

What is Non-Recourse Factoring?

Non-recourse factoring takes the opposite approach as recourse factoring, with the factoring company assuming the risk of customers not paying their invoices.

This approach offers an added layer of security for exporters and can be a great option for companies looking for competitive payment terms with reduced financial exposure. 

However, it’s much less common than recourse factoring and still doesn’t fully protect your business from risk, as many non-recourse factoring agreements include stipulations that cover only very specific situations.

Recourse vs. Non-Recourse Factoring

Recourse and non-recourse factoring share many similarities, but it’s important to understand the differences between the two. 

Which Option is Right for You?

Ultimately, the main difference between recourse and non-recourse factoring for exporters is who assumes the risk of non-payment.

With recourse factoring, your business must repay any unpaid invoices, making it a less expensive but riskier option. By contrast, non-recourse factoring offers more security but often includes higher fees and a more limited list of buyers.

Ultimately, you will have to assess factors such as your risk tolerance, customer creditworthiness and your current financial situation to make an informed decision on which option is best for your business.

When to Use Recourse Factoring 

Recourse factoring is typically the better option for exporters who have:

• International customers with strong payment records
• Customers with long-standing relationships
• Customers in countries with stable economies and banking systems
• The ability to accept the credit risk

When to Use Non-Recourse Factoring

On the other hand, non-recourse factoring might be the better option for exporters who:

• Work with foreign buyers with limited payment history
• Are entering new export markets 
• Want to protect against buyer insolvency
• Need predictable cash flow

Work With a Reputable Factoring Partner

While there are benefits and drawbacks to both recourse and non-recourse factoring, the most important thing you can do to support your business is work with a reputable factoring company that will guide you through the process.  

That’s where RTS Capital comes in. Backed by decades of experience, our team is trusted by global exporters across numerous industries to provide quick access to working capital. To learn more about our funding solutions, contact us today and a representative will be in touch shortly!