Recourse vs. Nonrecourse Payroll Funding for Staffing Companies

You may already know that payroll funding is when a funding provider like Encore Funding advances cash against your outstanding invoices. However, it’s important to understand the two main structures, recourse vs. nonrecourse payroll funding, before deciding how to manage your staffing firm’s capital needs.

Read on to learn the key differences between recourse and nonrecourse funding.

What Is Recourse Payroll Funding?​​

Recourse payroll funding is the more common of the two structures. Staffing companies benefit from lower fees and more flexible requirements, but remain responsible if a customer does not pay.

When staffing firms use recourse funding, their accounts receivable serve as collateral. The funding provider advances cash based on those receivables and often requires personal guarantees from ownership or management. If an invoice remains unpaid past its due date, the staffing firm is still liable, not the funding provider. If the invoice is deemed uncollectible or becomes disputed, it must typically be repurchased or replaced.

On the other hand, recourse funding often provides higher advance rates and lower costs. It remains the more widely used option due to its flexibility and efficiency, but it does require you to manage customer credit risk.

What Is Nonrecourse Payroll Funding?

Nonrecourse payroll funding reduces certain types of risk for the staffing firm, but comes with higher costs and stricter requirements.

Under this structure, the funding provider assumes liability for specific non-payment scenarios. However, this protection is usually limited. In many cases, the funding provider only assumes risk if your customer becomes insolvent or declares bankruptcy.

Because the funding provider is taking on additional risk, nonrecourse funding typically includes higher fees and tighter underwriting standards. Your customers will generally need strong credit profiles and a consistent payment history for invoices to be approved.

It’s important to note that nonrecourse funding does not cover all situations. Disputes, slow payments, or performance-related issues typically remain your responsibility.

Key Differences: Recourse vs. Nonrecourse Payroll Funding

Take the time to fully understand which factoring option is best for you.  

Learn More with a Payroll Funding Specialist

Staffing companies can use two primary types of payroll funding: recourse or nonrecourse. Recourse funding offers lower costs and works well for firms with reliable customers. Nonrecourse funding provides limited protection against certain types of bad debt but comes at a higher cost.

A payroll funding specialist can help you determine which structure best supports your growth and risk profile.

At Encore Funding, we work with staffing companies every day and understand how to structure funding solutions that align with your business.

Learn more about your funding options with Encore Funding.    

Contact Encore Funding 

If you’d like to get started, apply for funding or contact our team to get answers to your business questions.