Glossary · Factoring
Recourse factoring
Also called: Recourse
Definition
Recourse factoring is factoring in which the carrier must buy back, or absorb a chargeback for, any invoice the debtor doesn't pay within an agreed period.
Under recourse terms, the factor buys the invoice but the carrier keeps the credit risk. If the broker hasn't paid by the end of the recourse window, for example 90 days, the invoice comes back to the carrier as a buyback, usually netted from the reserve or the next funding.
Recourse is cheaper for the carrier because the factor holds less credit risk. It does not reduce fraud risk. A fraudster who sells you fake invoices, or factors the same invoice twice, has no plan to honor a buyback. Recourse is only worth what the client can repay, and a client that disappears leaves you with an unsecured claim.
Compare it with non-recourse factoring, read what non-recourse doesn't cover, and model the cost difference in the factoring cost calculator.