Recourse and non-recourse describe what happens if a factored invoice goes unpaid because the customer cannot pay. Under recourse factoring, you ultimately buy the invoice back or replace it. Under non-recourse factoring, the factor absorbs the credit loss if the customer becomes insolvent.
What each covers
Most factoring is recourse, which keeps costs lower. Non-recourse costs more because the factor takes on the customer's credit risk — but read the terms: non-recourse usually covers only the customer's insolvency, not disputes over the work, short-pays, or your own performance. It is credit-risk protection, not a blanket guarantee.
Which to choose
Recourse fits most businesses factoring creditworthy customers, since the buyback risk is low when debtors are strong. Non-recourse can make sense when you have customer concentration or want protection against a large customer failing. Either way, the factor vets your customers' credit up front.