Recourse, non-recourse and bad-debt protection

Recourse describes whether the finance provider can look back to your business for repayment when funded debts are not collected. Bad-debt protection is a separate feature whose scope is defined by its terms. Neither “non-recourse” nor “protected” should be read as a promise that every unpaid invoice is covered.

With recourse

The business can remain responsible for an uncollected debt and the associated funded balance. Establish the point at which a debt stops qualifying, what repayment or reserve is required and whether other debts can support the balance. This affects the cash forecast even before a customer is formally insolvent.

Without recourse

A non-recourse arrangement may transfer defined credit risks, but does not necessarily transfer disputes, fraud, returns, contractual offsets or every late payment. Ask for a written distinction between an approved credit loss and an invoice the customer says was never payable.

Optional protection

Some providers offer credit or debtor protection alongside finance. Compare the cost, approved customer limits, maximum cover, excesses, waiting periods and reporting obligations. Check whether the provider can change a credit limit and what happens to invoices already supplied when that occurs.

A practical example

Consider an illustrative £25,000 invoice for accepted goods where an approved customer later becomes insolvent. Contrast that with a £25,000 invoice disputed because the customer alleges incomplete delivery. The same unpaid amount can produce different outcomes under the protection terms. Ask the provider to walk through both cases.

The timing question

Even a covered loss may not produce an immediate claim payment. Forecast the period between a missed customer payment, loss of funding eligibility and any recovery under the protection arrangement. Cover that eventually pays can still leave an interim liquidity gap.

Questions before relying on cover

• Is this insurance, a contractual protection service or another arrangement?
• Which customers and invoices have approved limits?
• What events are covered and what is expressly excluded?
• What notices or debt-collection actions must the business complete?
• Who submits the claim and who receives any payment?
• What happens if you breach a reporting condition or change the customer terms?

Compare the net benefit

Protection can be valuable, particularly where a large customer failure would threaten the business. It also has a cost and does not replace proper credit control. Assess it separately from the funding advance so you can see what you are buying and what risk remains.