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Recourse
Also called with recourse, recourse factoring, full recourse.
The funder's right to come back to the client when the underlying obligation goes unpaid - in factoring, the standard structure, under which unpaid invoices are charged back.
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
Under a recourse facility the factor advances against an invoice but does not assume the risk that the customer fails to pay. If the invoice is still unpaid at the end of the recourse period - a stated number of days past invoice date or past due date, set in the agreement - the factor charges it back.
Chargeback is executed in whichever way is fastest for the factor: netted against the reserve, deducted from the next funding, offset against other collections, or demanded in cash. Netting is the usual route, and it is why a single large unpaid invoice can consume an entire week's advance and leave a client with negative availability.
Recourse facilities price below non-recourse ones, because the factor is buying a collection service and a timing advantage rather than credit risk.
## In lending
Full recourse means the lender can pursue the borrower personally, through a guarantee, beyond the collateral. Limited or non-recourse lending confines the lender to specified collateral, which is common in real estate and rare in small business credit.
Where this one catches people
In recourse factoring the credit risk never left you - you sold the timing, not the risk. Clients frequently describe themselves as having 'sold' their receivables and are surprised when a chargeback arrives months later, netted out of a funding they had already spent. Know your recourse period and track invoices against it.
Worked through
Illustration. A 90-day recourse period. A $60,000 invoice is factored at an 85% advance rate, so $51,000 is advanced and $9,000 held in reserve.
At day 91 the customer has not paid. The factor charges back the full $51,000. That week's new invoices total $40,000, generating $34,000 of advance - all of it absorbed, leaving the client $17,000 short plus a reserve that has already been applied. The invoice, and the job of collecting it, come back to the client.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
Where you will meet this term
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Recourse — common questions
What does recourse mean?
The funder's right to come back to the client when the underlying obligation goes unpaid - in factoring, the standard structure, under which unpaid invoices are charged back.
Where does recourse catch people out?
In recourse factoring the credit risk never left you - you sold the timing, not the risk. Clients frequently describe themselves as having 'sold' their receivables and are surprised when a chargeback arrives months later, netted out of a funding they had already spent. Know your recourse period and track invoices against it.
Is recourse the same as an interest rate?
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 recourse apply to?
Invoice Financing, Asset-Based Lending.
Is there a worked example of recourse?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside recourse?
Advance rate, Invoice factoring, Non-recourse, Personal guarantee, Receivable.
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.