What If My Customer Doesn't Pay?
This is the question everyone worries about but few ask upfront. The answer depends entirely on whether you have recourse or non-recourse factoring. The difference is who eats the loss.
Recourse Factoring (70% of market)
You repay the advance.
If your customer doesn't pay within the agreed period (usually 90-120 days), the provider debits the advance from your account. You're back to square one — out of pocket and chasing the customer yourself.
The risk is yours. It's cheaper (no bad debt insurance premium) but you carry the default risk.
Non-Recourse Factoring (30% of market)
The provider absorbs the loss.
If your customer goes bust or simply can't pay, the provider's credit insurance covers the loss. You keep the advance. The provider and their insurer take the hit.
The risk is theirs. It costs 0.3-1.5% more per invoice but gives you complete protection against customer insolvency.
Important Distinctions
Non-recourse doesn't cover everything. It typically covers customer insolvency (they go bust) but NOT trade disputes (the customer says your work was substandard and refuses to pay). If a customer disputes the invoice, even non-recourse providers will look to you to resolve it.
"Won't pay" vs "can't pay". Non-recourse covers "can't pay" (insolvency). A customer who simply refuses to pay despite being solvent may not be covered. This depends on the provider's specific policy — always check the wording.
Credit limits apply. The provider sets a credit limit for each of your customers based on their credit check. If you invoice above that limit, the excess may revert to recourse. Stay within approved limits for full protection.
The Practical Sequence When a Customer Doesn't Pay
Day 30-45: Payment becomes overdue
With factoring, the provider chases the customer. With discounting, you chase them yourself. Most late payments are just slow, not bad.
Day 60-90: Escalation
The provider increases pressure. Formal letters, phone calls, potential referral to collections. You should also be in contact with the customer to understand the reason.
Day 90-120: Resolution
Either the customer pays (most common), or it becomes clear they won't. At this point, recourse facilities debit your account. Non-recourse facilities trigger the insurance claim process.
How to Protect Yourself
- Choose non-recourse if you can afford the extra 0.3-1.5%. The peace of mind is worth it, especially if you have large invoices or customers in risky sectors.
- Diversify your customer base. Don't put all your eggs in one basket. If 80% of your revenue comes from one customer and they go bust, even non-recourse can't save your business.
- Stay within credit limits. The provider sets limits for a reason. Invoicing above the limit puts you in recourse territory even on a non-recourse facility.
- Get your own credit insurance. If you have recourse factoring, consider standalone trade credit insurance from Euler Hermes or Atradius. It's often cheaper than the non-recourse premium built into factoring.
For a deeper comparison, see our recourse vs non-recourse factoring guide.
Oliver Mackman
Director, Market Invoice
Oliver leads Market Invoice's editorial and comparison research. With a background in UK commercial finance, he oversees provider analysis, rate verification, and industry reporting across all verticals.
Last reviewed: 5 April 2026