What happens if my customer does not pay an invoice I have financed?

This is the question that matters most and the one people forget to ask. The answer comes down to a single term in your agreement: recourse or non-recourse.

• Recourse facility. If a customer does not pay within a set period, the funder recovers the advance from you, usually by adjusting your available funding. You carry the credit risk on your customers.
• Non-recourse facility, or bad-debt protection. The funder takes on the risk of an approved customer failing to pay, up to agreed limits. This gives you cover against a bad debt, but it adds cost and applies only to debts the funder has approved.

Most standard facilities are recourse. Bad-debt protection is an option you can add if the security is worth the extra cost for your business, which often depends on how concentrated your customers are.

Either way, the practical point is that invoice finance is not a way to offload a genuinely bad customer. What it does is release cash while you wait for good customers to pay. We always make sure you understand which basis your facility is on, and what happens in a non-payment, before you commit to anything.