Invoice finance (recourse): What happens if your customer doesn’t pay?

Short summary: Under a recourse invoice finance facility the business remains ultimately responsible if a debtor fails to pay. The funder will normally attempt collection, withhold or use reserves, and — depending on your contract — require you to repurchase or indemnify the unpaid invoice. Immediate steps: contact the provider or broker, gather proof of supply, and start dispute resolution. If you’d like tailored options, complete a Free Eligibility Check and we’ll match you with specialist lenders or brokers. Get Quote Now.

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Quick answer

If a customer doesn’t pay under a recourse invoice finance agreement the lender will usually: attempt to collect the debt, place a hold on reserve funds, and/or make a chargeback to reclaim monies already advanced. Under recourse you remain liable — the funder can require you to repurchase the invoice or indemnify them for any shortfall, and may pursue legal recovery if necessary. Exact steps, timings and costs depend on your facility terms, so notify the broker or lender early and gather supporting documents. For a personalised assessment and quotes, complete our Free Eligibility Check: Get Quote Now.

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What is invoice finance?

Invoice finance unlocks cash tied up in unpaid invoices so businesses can access working capital quickly. Two common forms are:

• Factoring – the funder manages collections and buys or advances against your invoices.
• Invoice discounting – you keep control of collections while borrowing against invoices.

Businesses use invoice finance to smooth cashflow, fund growth, manage seasonality, or cover supplier payments. Details vary widely by provider and product; the key distinction for risk is whether the arrangement is recourse or non‑recourse (see below).

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What is a recourse facility?

A recourse invoice finance facility means the business (you) keeps the ultimate risk of bad debt. If a debtor fails to pay, the funder can recover the advanced amounts from you under the contract. In contrast, in a non‑recourse (or limited recourse) product the funder assumes the bad‑debt risk for eligible invoices, usually in exchange for higher fees and strict eligibility criteria.

Typical recourse clauses to watch for in the facility agreement:

• Repurchase / indemnity clause – the business must repay the advance or indemnify the funder for irrecoverable invoices.
• Reserve / holdback – a percentage of invoice value retained to cover disputes and bad debts.
• Ageing / default trigger – e.g., invoices unpaid after 60/90 days are treated as default.
• Definitions of “dispute”, “insolvency”, and “force majeure” — these determine when repurchase is triggered.

Recourse is common because it keeps costs lower and eligibility wider. However, it transfers credit risk back to your business — so robust credit control and evidence of supply matter.

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Step‑by‑step: What happens if a customer doesn’t pay

1. Detection & ageing

• The funder or broker will flag invoices that reach agreed ageing points (e.g. 30, 60, or 90 days unpaid).
• You will normally receive notice. Check the facility agreement for the exact ageing thresholds and notification process.

2. Collection attempts by the funder or broker

• Many funders make initial collection attempts under the facility — courtesy calls, reminder letters or formal demands.
• If you use factoring, the funder often handles collections by default; with discounting you retain primary responsibility but the funder may assist.

3. Reserve / chargeback / holdback activation

• Reserves: the funder may withhold release of part of your funds to cover potential losses.
• Chargeback: if an invoice is deemed uncollectable, the funder may reclaim (charge back) the amount advanced against that invoice from your bank account or future advances.

4. Requirement to repurchase or indemnify

• Under recourse, you may be required to repurchase the unpaid invoice (i.e., repay the amount advanced plus fees and interest) or provide indemnity to the funder.
• Triggers typically include debtor insolvency, long‑running disputes not resolved within X days, or evidence of fraud.

5. Escalation: legal action or assignment back to you

• If collection attempts fail, the funder may instruct legal recovery or transfer the claim back to you to pursue directly.
• Legal costs and recovery fees are often payable by the business under the facility terms.

6. Accounting & tax consequences

• Repurchases, bad‑debt write‑offs, or reserve movements will affect cashflow and may need to be reflected in your accounts; speak to your accountant for correct treatment.

7. Timeframes and typical costs

• Common default windows: 60–120 days, but check your contract.
• Possible costs: collection fees, legal costs, interest on repaid advances, and administrative fees for chargebacks and paperwork.

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What you (the business) will normally have to do under recourse

Under a recourse agreement you will commonly be expected to:

• Provide documentary proof that goods/services were supplied (delivery notes, job sheets, signed acceptance forms).
• Co‑operate with collection activity and, where required, allow the funder to pursue the debtor.
• Repurchase or indemnify invoices if the contract requires, typically by repaying the advanced sums plus any fees/interest.
• Maintain credit control records and act swiftly on disputes to avoid chargebacks.

Practical repurchase: in many cases you’ll be asked to transfer funds equal to the advance outstanding (less any permitted reserve) or to provide a scheduled repayment plan agreed with the funder.

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Financial & operational impacts

When a debtor doesn’t pay under a recourse facility you can expect:

• Cashflow reduction — immediate repayment or chargebacks reduce available working capital.
• Higher borrowing cost — repeat defaults can lead to increased fees, higher reserves, or reduced advance rates.
• Operational distraction — management time spent on collection or legal processes.
• Customer relationship risk — aggressive recovery can stress customer relationships, so weigh commercial importance before escalation.

Preventative steps: robust credit checks, customer credit limits, and clear contract terms help reduce recourse exposure.

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Alternatives to a recourse facility

If you want to transfer bad‑debt risk away from your business, consider:

• Non‑recourse invoice finance — the funder bears eligible bad‑debt risk. Eligibility is strict and pricing is higher.
• Invoice credit insurance — covers losses from debtor default and can be used alongside invoice finance.
• Selective factoring or debtor‑by‑debtor non‑recourse — mix and match for high‑value customers with stronger credit profiles.
• Trade credit insurance — broader protection across customers and jurisdictions.

When non‑recourse is worth it: if you trade with a small number of large customers and need insulation from a single large bad debt, the higher cost may be justified. Ask us to match you with brokers who specialise in non‑recourse options: Free Eligibility Check.

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How UK Business Loans helps

We do not lend money or provide regulated financial advice. UK Business Loans connects businesses with specialist lenders and brokers so you can compare options and find the best fit.

To get meaningful, fast quotes we’ll need a few details: business name, turnover, typical invoice values, debtor profile (domestic/overseas, number of key customers) and whether you prefer recourse or non‑recourse. Our enquiry form is an information form only — it is not an application — and helps us match you to the right providers.

Typical timeline: once you submit the form you can expect responses from relevant lenders/brokers within hours to 48 hours. We commonly help businesses seeking facilities from around £10,000 upwards.

Get Started Free Eligibility Check — two‑minute form, no obligation. We’ll match you to lenders and brokers who specialise in invoice finance and recourse/non‑recourse products.

For background on invoice finance products and working capital options see our detailed guide to invoice finance.

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FAQs

What happens if my customer doesn’t pay under a recourse facility arranged through UK Business Loans?

Under a recourse facility you remain liable. The funder will typically attempt collection, use reserves or make a chargeback, and may require you to repurchase or indemnify the unpaid invoice. Exact remedies and timings are set out in the facility agreement — contact the lender/broker promptly.

What if my customer doesn’t pay on a recourse facility arranged via UK Business Loans?

Same outcome: the funder follows the contract — collection, reserve use, and potential repurchase/indemnity. We can match you to brokers who will explain the detailed terms before you commit. Free Eligibility Check.

What occurs if my customer fails to pay under a recourse facility arranged with UK Business Loans?

Expect collection activity, possible chargebacks, and an obligation on your business to reimburse the funder if the debt is irrecoverable. Gather evidence of supply and contact the lender without delay to reduce costs.

How long before an invoice is treated as default?

Commonly 60–120 days, but agreements vary. Check your facility paperwork for exact ageing thresholds.

Can I switch from recourse to non‑recourse later?

Sometimes — but switching is not automatic. Non‑recourse usually requires underwriter approval, creditworthiness of debtors, and higher fees, so discuss options with your broker.

Who pays legal costs if the lender pursues collection?

Facility agreements typically specify that legal and recovery costs are recoverable from the business or deducted from reserves. Confirm the specifics with the lender.

Will a chargeback hurt my future limits?

Repeated chargebacks or poor debtor performance can lead to increased reserves, reduced advance rates, or curtailed limits. Maintain good credit control to protect capacity.

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Security, compliance & trust

UK Business Loans is an introducer only — we do not lend and we do not provide regulated financial advice. We match businesses to lenders and brokers who can provide quotes. Always read any lender’s full terms and conditions and ask them for their regulatory details if you need them.

Useful authoritative resources:

• Financial Conduct Authority (FCA) — check regulatory status of lenders/brokers.
• GOV.UK insolvency guidance — what to expect if a customer becomes insolvent.

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Final CTA & next steps

1. Complete our short, no‑obligation enquiry form (it’s information only, not an application): Free Eligibility Check.
2. We match you to lenders and brokers who specialise in invoice finance and recourse/non‑recourse options.
3. Receive quotes and compare terms — you decide whether to proceed.

Ready to compare options? Get Quote Now — it takes around two minutes and won’t commit you to anything.

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Written by: UK Business Loans content team. We act as an introducer and do not provide regulated financial advice. Our enquiry form is for information only and is not a loan application.

1. What is invoice finance and how does a recourse facility work?
– Invoice finance unlocks cash tied up in unpaid invoices, and under a recourse facility your business remains ultimately liable so the funder can reclaim advances, use reserves or require you to repurchase or indemnify unpaid invoices.

2. What happens if my customer doesn’t pay under a recourse invoice finance agreement?
– The lender will typically attempt collection, activate reserves or chargebacks and may require you to repay the advanced amount (repurchase) or indemnify the funder according to your facility agreement.

3. How is recourse invoice finance different from non‑recourse (or limited recourse)?
– Recourse keeps bad‑debt risk with your business and usually costs less, while non‑recourse transfers eligible bad‑debt risk to the funder but carries stricter eligibility and higher fees.

4. Will a chargeback or repurchase hurt my future invoice finance limits?
– Yes — repeated chargebacks or unrecoverable debts commonly lead to higher reserves, reduced advance rates or curtailed facility limits.

5. What documents and evidence should I gather if a debtor defaults?
– Provide contracts, purchase orders, delivery notes, signed acceptance forms and all correspondence proving supply and attempts to collect to support the funder’s recovery or dispute process.

6. Can I switch from a recourse to a non‑recourse facility later?
– Sometimes — switching usually requires underwriter approval, debtor credit checks and acceptance of higher fees and stricter terms, so discuss options with your broker or lender.

7. How quickly can I get invoice finance quotes through UK Business Loans?
– Complete our short Free Eligibility Check (about two minutes) and you can expect matched lenders or brokers to respond within hours to 48 hours with tailored options.

8. Will submitting an enquiry with UK Business Loans affect my credit score?
– No — our enquiry form is information only (not an application) and does not affect your credit score; lenders may run checks only if you proceed with an application.

9. What costs should I expect with invoice finance, especially under recourse?
– Expect discount/interest charges, facility and admin fees, reserve holdbacks and potential collection or legal costs if a debtor defaults, with exact pricing varying by lender and recourse status.

10. What immediate steps should I take if a customer fails to pay under an invoice finance facility?
– Contact your lender or broker immediately, gather proof of supply and correspondence, attempt documented dispute resolution with the customer, and consult your accountant or legal adviser if insolvency is suspected.