Learn · 5 min
What happens if your buyer never pays?
This is the single most important question to ask before financing an invoice, and the one the industry is quietest about. The answer has a name: recourse.
One workshop, one bad month
Anita runs a precision machining workshop in Thane. In April she delivers an order and raises an invoice for ₹20,00,000, payable in 60 days. She does not want to wait two months for the money, so she finances the invoice with us - an advance against the invoice, with recourse. She gets ₹NaN in her account the next day.
In June, the buyer goes under. The invoice is never paid.
With recourse
Anita has to repay the advance
The financier lent against the invoice, but Anita guaranteed it. She owes back the ₹NaN she was advanced. The retention she was waiting for never arrives. She is out the cost of the goods, the cost of the finance, and now carries a debt.
She would have lost the ₹20,00,000 anyway - the buyer failed. What recourse changes is that financing did not protect her from it.
Nine times out of ten the buyer pays and none of this happens. That is the honest summary, and it is also why the question is worth asking before you sign: financing an invoice moves the money forward, it does not move the risk of your buyer failing. That risk stays with you.
How to decide, in one question
If this one invoice were never paid and you also had to repay the advance, would your business still be trading in six months?
If the answer is yes, financing this invoice is a reasonable thing to do. If it is no, or if you had to think about it, this is not the invoice to finance - not with us and not anywhere, because every advance of this kind is repayable if your buyer fails.
Things that are not the same as recourse
- Your buyer paying late is not a default. The charge keeps running and it costs you more, but nobody calls the advance back.
- Your buyer deducting for a genuine problem - a credit note, a quality claim, a short shipment - is dilution, and it comes out of your retention rather than out of the cash already in your account.
- A dispute you caused is yours either way. No product transfers the consequences of not delivering what you promised.
That second point is the one people get wrong most often. A deduction your buyer makes is not a default, and no invoice finance anywhere protects you from your own disputes.
What we offer
One product, and it is with recourse: an advance against your invoice. It is on the quote screen and on your Key Fact Statement, in those words, before you accept anything.
- Advance against invoice. 90% advanced within 24-72 hours, the rest when your buyer pays, less our charges. Your buyer is never notified.
- With recourse. If your buyer never pays, you repay the advance. That is the whole of it, and it is the sentence to look for in anybody else’s agreement too.
If anyone offering you invoice finance cannot tell you in one sentence whether it is with recourse, do not sign it.