Understanding the Difference Between Recourse and Non-Recourse Factoring 

What Is Recourse Factoring? 

Porter Capital’s recourse factoring platform is our standard offering and continues to be a reliable option for many of our clients. In a recourse arrangement, there is a sale and purchase of an invoice with the business maintaining the responsibility for repurchasing the invoice if it remains unpaid past a certain threshold. Providing the SMB more flexibility and affordable terms while delivering fast access to working capital. 

How It Works 

A recourse agreement, is a sale and purchase. Porter Capital purchases the invoice and  advances funds based on the invoice value. If the customer ultimately fails to pay, the business is responsible for repaying us. This keeps the cost of capital down and allows us to move quickly without the need for credit insurance on every account. 

Who It’s Best For 

Recourse factoring is ideal for small & medium sized businesses. It works especially well when companies are confident in their customers’ ability to pay and want to maximize cash flow without the added expense of insurance. 

Common Misconceptions 

Some companies mistakenly believe that once they sell an invoice—even under a recourse agreement—the responsibility shifts entirely to the factor. It’s important to understand that recourse factoring still places the credit risk on the business. That said, our job is to help mitigate that risk wherever possible. 

What Is Non-Recourse Factoring? 

Non-recourse factoring, by contrast, is a specialty solution where Porter assumes the credit risk on approved accounts. This means if a customer becomes insolvent and can’t pay, the responsibility doesn’t fall back on our client. 

Credit Risk Transfer Explained 

When we talk about credit risk, we’re referring specifically to the financial solvency of the account debtor—your customer. If they go bankrupt or close their doors, and the invoice qualifies, we absorb the loss. That protection offers peace of mind but comes with more due diligence and often higher pricing. 

What’s Covered and What’s Not 

It’s important to clarify that non-recourse does not cover every reason an invoice might go unpaid. We do not cover issues related to disputes, deductions, shortages, or returns. Invoices with high dispute potential or from customers with poor credit history are typically excluded from non-recourse coverage. 

Who Qualifies for Non-Recourse Terms? 

To qualify, invoices must be clean and customers must have a track record of timely payments. We review each account and set credit limits in alignment with our credit insurance coverage. 

Porter Capital’s Unique Non-Recourse Offerings 

Introducing the Non-Recourse Carve-Out Product 

One of the more exciting solutions we’ve developed at Porter is our non-recourse carve-out product. This offering allows companies to unlock capital from their receivables without disturbing their existing treasury services or senior lending relationships. 

How It Preserves Existing Bank Relationships 

The carve-out structure is designed to work alongside a senior lender. We’ve successfully implemented this with major banks across the country. Your current lender retains its UCC filing, and we step in through carefully crafted intercreditor and control agreements. The bank maintains its priority; we provide the liquidity. 

Why Private Equity Firms and Portfolio Managers Are Taking Notice 

This product is particularly appealing to private equity firms and family offices. It enables capital infusion without triggering covenant issues or requiring additional equity. It’s an elegant way to bridge funding gaps or navigate concentration issues. 

Real Deal Structures That Work 

The Role of DACAs and Intercreditor Agreements 

Every carve-out deal is structured to respect the senior lender’s position. We use intercreditor agreements to define our role and DACAs (Depository Account Control Agreements) to ensure the clean transfer of funds. Each deal is unique, but the goal is always the same—streamline cash flow without disrupting existing relationships. 

Partnerships With Major Banks

We’ve collaborated with some of the largest financial institutions in the U.S. to bring these structures to life. These banks recognize the value of our approach and the strength it brings to their client relationships. 

Strategic Considerations for CFOs and Portfolio Managers 

When Non-Recourse Makes Sense in the Capital Stack 

Solving for Concentration and Audit Constraints 

If a senior lender is limiting availability due to customer concentrations or audit flags, non-recourse factoring can create immediate runway. By isolating specific receivables, we provide capital without increasing debt loads. 

A Bridge to Equity or Permanent Lending 

Whether you’re planning an equity raise or waiting for a longer-term facility, our non-recourse product can be the bridge that gets you there. 

Key Questions We Ask Before Structuring a Deal 

Understanding Your End Goals 

Are you looking to offload credit risk? Do you need an off-balance sheet solution? Or are you trying to optimize working capital ahead of a major growth push? We tailor our approach based on your answers. 

Evaluating Your Customer Mix 

We take a close look at your customer base—creditworthiness, payment history, dispute frequency. It’s not just about today’s receivables, but what the future pipeline looks like. 

Avoiding Pitfalls and Red Flags 

Common Mistakes Companies Make with Non-Recourse Agreements 

Growth Assumptions and New Customers 

One mistake we often see is failing to consider how the customer base may change. A client may onboard new customers that don’t qualify for non-recourse, leaving a funding gap. 

Misunderstanding Credit Insurance and Coverage Limits 

Non-recourse is built around insurance-backed coverage. That means each customer and invoice must meet strict criteria. Not understanding those limits can lead to disappointment if expectations aren’t aligned. 

Spotting Clients Who Aren’t a Good Fit 

Time in Business and Payment History 

Startups or companies without established customer payment histories often aren’t a good fit. The cleaner and more predictable the receivables, the better. 

High Dispute Potential in Receivables 

If invoices frequently involve returns, deductions, or disputes, they’re not ideal for non-recourse. 

Positioning the Carve-Out with Senior Lenders 

Speaking the Banker’s Language 

“No Treasury Disruption” as a Selling Point 

We don’t disrupt existing cash management. The bank keeps its systems in place, and our agreements ensure their priority remains untouched. That’s a huge comfort to bankers. 

How We Maintain Senior Lender Priority 

Through intercreditor agreements and DACAs, we clearly define our role and ensure seamless operation with the senior lender. 

Listening for Pain Points That Signal Opportunity 

Line Limitations, Covenants, and Capital Needs 

When I hear a banker mention concentration issues, line exhaustion, or covenant pressure, I know we can help. We’re not here to replace the senior lender—we’re here to complement them. 

Custom Solutions Without Adding Debt 

Our carve-out product offers a path to more capital without adding traditional debt. That’s a compelling option for businesses looking to grow smartly. 

If you’re weighing your options between recourse and non-recourse factoring—or need a creative funding solution that won’t upset your current banking relationship—Porter Capital is here to help. I’m happy to walk through your unique situation and outline what’s possible.