17 statistics that debunk myths about non-recourse factoring risk

Updated on June 12, 2025

Non-recourse factoring is often misunderstood by businesses because of common misconceptions and myths about its risk. These statistics offer clear proof that many fears about non-recourse factoring risk are not accurate.

Business owners looking for accurate information can benefit from data-driven insights to make informed decisions. For more details on this topic, check out these myths about non-recourse factoring and an industry myth-busting guide.

1) 80% of business failures are caused by lack of cash, highlighting factoring's cash flow importance

Over 80% of business failures can be traced to cash flow shortages. This issue affects both new and established firms.

Non-recourse factoring gives companies access to steady cash, helping reduce this risk.

Businesses using factoring can focus on growth instead of worrying about late payments. More on how factoring reduces risk can be found from industry experts.

2) Non-recourse factoring covers primarily customer insolvency and bankruptcy risks

Non-recourse factoring usually protects businesses from losses if a customer cannot pay due to insolvency or bankruptcy. This means the factoring company takes on these specific risks, not the business.

Other risks, like disputes about product quality or missed deliveries, are not typically included. Businesses should be aware that many non-recourse agreements limit coverage to a few key situations, as explained by non-recourse factoring arrangements.

For more details about the difference between recourse and non-recourse options, see this guide to recourse and non-recourse factoring.

3) Recourse factoring is more common but shifts more risk to the business

Recourse factoring is widely used by businesses. In this type of agreement, companies must buy back unpaid invoices if the customer does not pay.

The risk of non-payment stays with the business, not the factoring company. This means greater financial liability for the company.

To compare details about recourse factoring vs non-recourse factoring, businesses can review industry resources for clear breakdowns. Some providers also cover the pros and cons of recourse and non-recourse factoring for deeper analysis.

4) Non-recourse factoring fees are typically 0.5%-1% higher than recourse factoring fees

Non-recourse factoring usually costs more than standard recourse factoring. Businesses can expect the fee to be about 0.5% to 1% higher per invoice, depending on client credit risk and industry.

This pricing difference is explained in greater detail in non-recourse factoring rates and fees. Extra fees can impact the total cost for businesses, so it's important to compare both options. For more on the basics, see this page about what is non-recourse factoring.

5) Non-recourse contracts often include exceptions limiting full protection from bad debt

Non-recourse factoring agreements do not always offer absolute protection against losses. Often, these contracts contain special exceptions, known as carve-outs, that make the client responsible for specific types of bad debt.

For instance, if a business misrepresents information or commits fraud, the factoring company can require full repayment. These recourse carve-outs are stated clearly in most agreements.

Businesses should always check what risks remain before signing non-recourse factoring agreements.

6) Businesses still face risks like invoice disputes under non-recourse factoring

Even with non-recourse factoring, companies are not free from all risks. If a customer disputes an invoice or claims the goods or services were not delivered as agreed, the business may remain responsible for payment issues.

Some risks, such as invoice quality problems or delivery issues, still fall on the business and not the factoring company. To learn more about this, see common risks of invoice factoring and why they matter. For more tips, see our guide to non-recourse factoring basics.

7) Non-recourse factoring requires businesses to have strong credit profiles

It is a misconception that only businesses with strong credit profiles can use non-recourse factoring. Factoring companies focus more on the creditworthiness of a business's customers, not the business itself.

This opens doors for startups or growing companies that may not have an extensive credit history. Companies interested in credit risk management can learn more from non-recourse factoring frequently asked questions.

For a detailed breakdown, recourse and non-recourse factoring comparison shows how requirements differ.

8) Factoring is used strategically by successful companies, not just struggling businesses

Successful companies use factoring to manage cash flow and strengthen their operations. Factoring is not only for struggling businesses or those facing financial problems.

It is a common option for companies of all sizes, including those that are profitable, to increase access to capital and keep operations running smoothly. For more on this point, see how factoring is a widely used cash flow management strategy.

Even large corporations rely on this tool when waiting on slow-paying clients could impact growth. Explore more reasons businesses choose this flexible solution in why do companies use factoring.

9) Non-recourse factoring shifts credit risk to the factoring company

With non-recourse factoring, the factoring company, not the business, takes on the risk if a customer does not pay an invoice. This protects the business from losses due to customer insolvency or bankruptcy.

If a buyer defaults, the business keeps the funds already advanced and is not responsible for the unpaid debt. You can read more about how non-recourse factoring protects businesses from the risk of customers not paying at resolvepay.com/blog/non-recourse-factoring. Retaining this protection allows companies to focus on growth and operations, instead of debt collection. Learn about differences between recourse and non-recourse factoring explained.

10) Non-recourse factoring does not cover delivery or service quality disputes

Non-recourse factoring only protects against specific risks, like customer insolvency. It will not cover situations where there are disputes over the delivery or quality of goods and services.

If a customer refuses payment because of a disagreement about what was delivered, the business is still responsible for the unpaid invoice. This is explained clearly in non-recourse factoring articles.

For more on when non-recourse agreements do and do not protect a company, see the overview of recourse vs non-recourse factoring.

11) Advance rates are usually lower in non-recourse factoring agreements

Non-recourse factoring generally offers businesses lower advance rates than recourse options. This means companies receive a smaller percentage of the invoice value upfront.

Typical advance rates for non-recourse deals fall between 70% to 85%. In comparison, recourse factoring can offer advance rates up to 90%.

Businesses should consider how factoring advance rate affects their cash flow needs when choosing between these options.

12) Non-recourse factoring can include additional fees like credit check and admin fees

Companies using non-recourse factoring may face extra costs beyond the standard discount rate. These can include credit check fees charged for evaluating customer accounts, as well as admin fees for managing paperwork or payments.

Businesses should watch for these additional expenses in debt factoring to avoid surprises. Fee structures are usually outlined in the agreement, so reading all terms is important.

13) More than 20% of small businesses fail within their first year without proper cash flow

Over 20% of small businesses do not make it past their first year, often because they lack steady cash flow. This risk is especially high for businesses that depend on customer payments to manage daily expenses.

Recent statistics from the U.S. Bureau of Labor Statistics show that 20% of businesses fail in their first year, which highlights how vital cash flow management is. For companies looking to protect themselves, solutions like non-recourse factoring can help stabilize cash flow, as discussed in "is non recourse factoring risky" on the altline blog.

14) Non-recourse factoring is not exclusive to high-risk businesses, contrary to myths

Some believe that only high-risk companies use non-recourse factoring, but this is not true. Firms of all sizes, from stable industries, also choose this option to manage credit risk and keep cash flow steady.

As explained in the article about common myths on non-recourse factoring, non-recourse factoring can be a smart tool for businesses with reliable customers.

Non-recourse factoring agreements can help companies reduce risk without being labeled as risky or desperate. Learn more about how recourse vs non-recourse factoring can benefit a wide range of businesses.

15) Non-recourse factoring reduces pressure during broker or shipper bankruptcy

Non-recourse factoring can help businesses avoid losses when a broker or shipper files for bankruptcy. The factoring company, not the business, takes on the risk if a customer can’t pay because of insolvency.

This approach allows companies to protect their cash flow in broker or shipper bankruptcy situations. To learn more about non-recourse factoring benefits, check out non-recourse factoring details for brokers.

16) Hidden costs in non-recourse factoring can outweigh some benefits

Non-recourse factoring often comes with higher fees compared to recourse options. These fees are usually about 0.5% to 1% more, which can lower a company's cash flow over time.

When prices are already tight, these added costs may reduce the value of the non-recourse protection. Detailed information on these risks and costs can be found in this non-recourse factoring LinkedIn article and a sample non-recourse factoring agreement analysis.

17) Non-recourse factoring protects healthcare providers from non-payment liabilities

Non-recourse factoring shifts the risk of non-payment away from healthcare providers. The factoring company becomes responsible if a patient or insurer does not pay the invoice.

This setup lets providers avoid collection problems and reduces stress over unpaid accounts. Many healthcare companies use non-recourse versus recourse key insights to help decide the best billing approach.

Unlike recourse factoring, this method helps organizations stay focused on patient care by limiting financial distractions. More details about how this works are found in the article on reducing financial risk with non-recourse factoring.

Understanding Non-Recourse Factoring Risk

Non-recourse factoring shifts certain risks from a business to a factoring company, but it does not eliminate all risk. The type of risk covered depends heavily on contract details and the financial health of a business’s customers.

Distinguishing Non-Recourse and Recourse Factoring

Non-recourse factoring means the factoring company accepts loss if a customer becomes bankrupt or insolvent. If an invoice goes unpaid because the customer cannot pay due to insolvency, the business does not have to buy back the invoice. However, if non-payment is due to dispute, damaged goods, or delivery issues, the business usually retains responsibility.

Recourse factoring usually costs less, but if a customer fails to pay an invoice for any reason, the business must repay the factoring company. This distinction matters for businesses wanting to reduce exposure to bad debts.

For a detailed comparison, visit the difference between recourse and non-recourse factoring page to see specific contract features that affect liability.

Key Factors Influencing Risk Perception

Several issues shape how risky non-recourse factoring is for a business:

• Customer creditworthiness: Non-recourse providers look at the financial health of a business’s customers. Higher-risk customers may drive up fees or make non-recourse unavailable.
• Contract exclusions: Many non-recourse contracts only cover bankruptcy or insolvency. Disputed invoices, short payments, or returns are not covered.
• Cost difference: Non-recourse usually costs more since the factoring company is taking on extra risk.

Businesses should carefully check contract language and ask about specific risks before selecting a factoring option. For more details on how contractual differences impact coverage, read the guide on understanding factoring: recourse vs non-recourse factoring.

Risk Management Best Practices

Effective risk management in non-recourse factoring prevents unexpected losses and supports stable cash flow. Key safeguards include careful applicant screening and well-structured agreements.

Due Diligence and Credit Assessment

Thorough due diligence starts with a detailed review of a client's customers, focusing on payment history, financial stability, and sector risk. This helps factor companies assess whether receivables are likely to be paid.

Factoring firms often use credit scores, trade references, and public records to analyze risk. By prioritizing customers with strong payment backgrounds, they lower exposure to bad debt. Technology tools that update client risk profiles in real-time make this process quicker and more accurate.

Regular credit reassessments also decrease the chance of surprises. Higher-risk accounts may be excluded from approved invoices, which protects both the factor and the business. For more on modern risk practices and up-to-date risk management statistics, data-driven approaches can offer important guidance.

Contractual Safeguards in Factoring Agreements

A well-written factoring contract sets clear terms about responsibilities, recourse events, and dispute resolution. This usually includes specifics about which receivables qualify, how defaults are handled, and timelines for payments.

Common safeguards include description of recourse events, like fraud or customer bankruptcy, even in a largely non-recourse setup. Exclusions are spelled out, so both sides understand what is covered by the agreement.

It is critical for businesses to work with legal counsel to customize terms, making sure they support unique operational concerns. Industry experts also suggest reviewing risk assessment best practices to strengthen contract effectiveness and reduce uncertainty.

Frequently Asked Questions

Non-recourse factoring changes how businesses manage risk when dealing with unpaid invoices. It offers a way to shift certain types of risk away from the business by working with a factoring company.

What are the common misconceptions about the risk associated with non-recourse factoring?

Many believe non-recourse factoring fully protects against any unpaid invoices. In reality, most non-recourse agreements only cover customer insolvency or bankruptcy, not all types of non-payment.

Some also think this option is rare or unavailable. While recourse factoring is more common, non-recourse options are still widely offered by many factoring companies.

How does non-recourse factoring differ from recourse factoring in terms of risk exposure?

With non-recourse factoring, the risk of customer insolvency shifts to the factoring company. In recourse factoring, the business remains responsible for unpaid invoices, increasing their risk exposure.

Businesses using non-recourse factoring do not have to buy back uncollected invoices if customers go bankrupt. This key difference affects how companies handle bad debt.

Can non-recourse factoring actually mitigate the risk of customer default?

Yes, non-recourse factoring is designed to reduce the risk of losing money if a customer becomes insolvent or bankrupt. The factoring company absorbs the loss from these types of defaults.

However, agreements often have exceptions, so coverage is not always absolute. Companies should read terms closely and ensure they know what is included.

What safeguards are in place with non-recourse factoring to protect against bad debt?

Factoring firms usually conduct thorough credit checks on clients before buying invoices. This helps lower the chance of unpaid debts from high-risk customers.

Bad debt protection mainly covers losses from insolvency, not disputes over service or product quality. Bankers Factoring outlines that bad debt protection through non-recourse invoice factoring focuses on credit-related risks.

What are the potential financial impacts for businesses using non-recourse factoring?

Non-recourse factoring can help businesses avoid major losses from bankrupt clients. It frees up cash flow and reduces the stress of chasing unpaid bills.

Fees are higher, usually 0.5%-1% above recourse factoring. Companies must weigh the cost against the reduced financial risk and improved cash stability.

How does the cost of non-recourse factoring compare to the risk reduction benefits it offers?

Non-recourse factoring fees are typically higher than recourse options. Businesses pay extra for the protection against customer bankruptcy.

For firms in industries with high default risks, the extra fee may be worth avoiding bigger financial hits. Balancing cost and risk relief is key when shopping for non-recourse factoring.

This post is to be used for informational purposes only and does not constitute formal legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Resolve assumes no liability for actions taken in reliance upon the information contained herein.