Non-recourse

The factor takes the loss if a customer goes bankrupt or can't pay due to a qualifying credit problem—but the fine print usually excludes disputes, fraud, and many other non-payment causes.

Why it matters

Non-recourse factoring sounds like full protection but rarely is. The exclusions in the contract—which typically carve out disputes, customer offsets, fraud, dilution, and invoice defects—mean many non-payment events are still the seller's problem. Read the specific coverage language, not just the label. Non-recourse programs also typically carry higher fees to compensate the factor for the credit risk it assumes.

How it appears in contracts

Non-recourse protection language appears in the 'Credit Risk' or 'Non-Recourse' section. The critical text is the exclusions list: most agreements state that non-recourse coverage does not apply to non-payment caused by disputes, dilution, setoffs, counterclaims, the seller's warranty breaches, debtor insolvency that predates the funding date, or any circumstance other than the debtor's financial inability to pay. Read these exclusions carefully—they often eliminate non-recourse protection for the most common non-payment scenarios in practice.

Related terms

Related article: What is invoice factoring?

Related reading

Sources

  • International Factoring Association - International Factoring Association. Accessed 2026-05-19. Industry association source for factoring terminology and industry context.
  • Secured Finance Network - Secured Finance Network. Accessed 2026-05-19. Industry education source for secured finance and asset-based lending context.
Financial disclaimer. This page is educational only and is not financial, legal, tax, accounting, or credit advice. Factoring terms vary by provider and contract. Read the full disclaimer.