What does “Recourse Period” mean in invoice finance and factoring?
Most invoice finance and factoring facilities have what is called a recourse period. This is the maximum period an invoice will be funded for.
Once this period has passed you may be required to pay a refactoring fee, or if it is a bad debt, repay the borrowing. A typical recourse period is around 90 to 120 days.
Recourse Period Example
If your recourse period is 90 days, then any funded invoices need paying by your customer within that period.
Recourse period: 90 days
Credit terms: 60 days
In this example, if your customer pays more than 30 days late you could be liable for an additional refactoring fee, and the invoice will be taken out of the funding calculation.
Why the recourse period matters more than it looks
The headline number only tells you half of it. What matters is the gap between your recourse period and the credit terms you actually give customers. A 90 day recourse period against 30 day terms leaves 60 days of slack. The same 90 days against 60 day terms leaves 30, and if your customers habitually pay at 75 days you will be disapproving invoices every month.
When an invoice passes recourse it is removed from the funding base, so the cash is clawed back from your availability whether or not the customer eventually pays. On a ledger with a few slow payers that can take a meaningful slice out of a facility without warning.
Recourse period is negotiable, and extending it from 90 to 120 days is one of the more achievable concessions on a facility. It is worth asking for where your sector runs long payment cycles, and it is a separate question from whether the facility is recourse or non-recourse, which is about who carries the bad debt risk rather than how long an invoice is funded.
Related terms
See also refactoring fee, the charge that applies once recourse is passed, and advance rate.
For how facilities compare on terms as well as price, see invoice finance, or the costs of factoring.
Bolton Business Finance is a whole of market commercial finance broker. We can get quotes, negotiate terms and set up a new facility. Call 0161 546 9128.
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