Find Me Funders
Non-recourse
Also called without recourse, non-recourse factoring.
A structure in which the funder cannot come back to the client for repayment if the underlying obligation goes unpaid - almost always limited to one narrowly defined cause.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
## In factoring
Non-recourse means the factor absorbs the loss when an approved account debtor fails to pay for a defined reason, which in most agreements is that debtor's formal insolvency or bankruptcy within a stated window. It is credit protection on a specified customer, not a guarantee against non-payment generally.
Excluded in most agreements: disputes over quality or delivery, offsets and contra accounts the customer asserts, short pays, credit memos, returns, invoices billed outside approved credit limits, and slow payment that never becomes insolvency. All of those come back to the client through the repurchase clause. Sitting on top is the validity guarantee, under which the client warrants that each invoice is genuine, undisputed and properly assignable - and a breach of that warranty is recourse whatever the cover page says.
## In advances
Advance marketing uses the word to mean the funder bears the risk of the business failing. The purchase structure supports that claim, and it is the honest description of the credit risk. But the performance guarantee attached to the deal turns most distressed exits into a breach - closing the account, blocking the debit, changing processors - and once breached, the guarantor is typically exposed to the whole unpaid balance.
Read the exclusions before the label. Non-recourse describes which single risk the funder accepted, not the absence of recourse.
Where this one catches people
Non-recourse covers credit risk, not performance risk. If your customer refuses to pay because it says the work was defective, that is your problem under nearly every non-recourse agreement written - and disputes, not insolvencies, are how most invoices actually go bad. Ask what percentage of the factor's charge-backs last year were insolvency-driven and the point makes itself.
Where you will meet this term
Read next
Non-recourse — common questions
What does non-recourse mean?
A structure in which the funder cannot come back to the client for repayment if the underlying obligation goes unpaid - almost always limited to one narrowly defined cause.
Where does non-recourse catch people out?
Non-recourse covers credit risk, not performance risk. If your customer refuses to pay because it says the work was defective, that is your problem under nearly every non-recourse agreement written - and disputes, not insolvencies, are how most invoices actually go bad. Ask what percentage of the factor's charge-backs last year were insolvency-driven and the point makes itself.
Is non-recourse the same as an interest rate?
Non-recourse is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does non-recourse apply to?
Merchant Cash Advance, Invoice Financing.
Is there a worked example of non-recourse?
Not on this entry. Where a term is arithmetic, the arithmetic is shown; this one is not primarily a calculation.
What else should I read alongside non-recourse?
Credit Limit, Invoice factoring, Performance guarantee, Recourse, Repurchase.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.