The recourse period is the window a factor gives a customer to pay a purchased invoice before the factor can charge that invoice back to the seller. It applies in recourse factoring and sometimes to disputes under non-recourse arrangements.
How it works in factoring
The agreement states how long the period lasts and what it is measured from: the invoice date, the purchase date or the due date. When the period ends and the invoice is still unpaid, the seller typically must:
- Repay the advance plus accrued fees, often by deduction from its reserve
- Replace the invoice with a new eligible invoice of equal value
- Accept an offset against the next funding
Illustrative example: Under an assumed 90-day recourse period measured from purchase, an invoice bought on March 1 that remains unpaid on May 30 is charged back. The seller repays the advance and fees, and the invoice returns to the seller to collect.
The recourse period interacts with fees. In a tiered structure, fees keep growing until either the customer pays or the invoice is charged back, so a long recourse period can mean higher total fees on slow invoices. A short one can lead to frequent chargebacks if customers routinely pay a little late.
What to check
- How the period is measured and how long it is
- Whether fees stop accruing at the chargeback date
- Whether the factor keeps collecting after the chargeback, and how recoveries are credited to you
- Whether different customers have different periods
Match the recourse period to how your customers actually pay, not just their stated terms.