Companies often trade on deferred payment terms: the goods have been delivered, but the money arrives in 30, 60 or 90 days. Rather than wait for payment, the supplier assigns the receivable to a factor and is financed at once.
Factoring with recourse is the commonest model of such financing. The factor takes on the money but not the risk of non-payment: if the debtor does not pay on time, the factor demands the financing back from the client. The price of that is a lower fee than under the non-recourse model, and a liability that stays on the supplier’s balance sheet.
How recourse works
Factoring agreements are governed by Chapter 73 of the Civil Code (Arts. 1077–1086), and since 30 July 2026 by the Law “On Factoring” No. 4466-IX as well. A factor may be a bank or another financial institution: before signing it is worth checking the counterparty in the National Bank’s register of financial institutions, because an agreement with someone not entitled to provide financial services can be set aside.
The arrangement looks like this:
- the supplier ships the goods or provides the service;
- a receivable arises with deferred payment;
- the receivable is assigned to the factor under a factoring agreement;
- the factor pays the client part of the sum, usually 70–90 %, and the rest once the debt is settled, less its fee;
- the debtor is notified of the assignment in writing (Art. 1082 of the Civil Code) and from then on pays the factor;
- if the debtor does not pay on time, the factor exercises recourse against the client.
When a business chooses recourse factoring
Typical situations
- the buyers have a steady payment record and the risk of non-payment is low;
- working capital is needed quickly, without waiting out the deferral;
- the company is willing to carry part of the non-payment risk in exchange for cheaper financing;
- the bank refused a loan for want of collateral: in factoring the receivable itself is the security.
Because the factor’s risk is lower, the fee under the recourse model is smaller than under the non-recourse one. The difference of a few percentage points a year is the price of leaving the non-payment risk with the supplier.
What to check in the agreement before signing
The scope and grounds of recourse
For which defaults the factor may demand the money back: only the debtor’s failure to pay, or also any dispute with them, a return of goods, or a set-off of counterclaims.
The deadline for a recourse demand
It is usually set at 30–60 days after the debtor’s payment falls due. If the agreement fixes no deadline, the demand can arrive at any time and working capital cannot be planned.
The full cost of the financing
The factoring fee, the charge for the use of funds, the servicing fee and the penalties for late recourse — all together as a percentage a year, not as separate lines.
How the debtor is notified
Without written notice of the assignment the buyer is entitled to pay the original creditor, and that payment will be good (Art. 516 of the Civil Code).
The effect of a contractual ban on assignment
If the underlying contract with the buyer forbids assignment, the assignment is still valid (Art. 1080 of the Civil Code), but the client remains liable to the debtor for breaching that term, and the factor does not take that liability on.
Dispute resolution
Court or arbitration, jurisdiction, and any mandatory pre-action demand.
Where problems most often arise
Defects in the underlying documents
A delivery note without an authorised signature, an acceptance act without a seal, a mismatch in the item descriptions — and the claim is held invalid. The client is then liable to the factor even without a recourse clause, because under Art. 1081 of the Civil Code they warranted the claim’s validity.
A quality dispute with the buyer
The buyer complains of defects and refuses to pay. To the factor that is simply a default, and it triggers recourse, so the client is fighting the buyer and repaying the financing at the same time.
Set-off of counterclaims
If the buyer had a counterclaim against the supplier before notice of the assignment, they may raise it against the factor (Art. 518 of the Civil Code). Such set-offs regularly devalue an assigned receivable.
Double assignment
The same claim is assigned to two factors, or first to a factor and then pledged to a bank. That is already grounds for criminal proceedings, and it is cases like these that make checking the counterparty essential for both sides.
A case from our practice
In 2025 a packaging manufacturer came to us: it had assigned to a factor claims against a retail chain of about 2 million UAH and received 80 % financing. The buyer was two months late and raised a complaint about part of the consignment, and the factor sent a recourse demand for the whole sum together with a penalty. We checked the agreement and saw that on its terms recourse extended only to the unpaid part of the debt, and that the penalty had been charged before the period set by the agreement had expired. The factor’s demand was cut back to the actual debt with no penalty, a payment schedule was agreed with the buyer in parallel, and the matter closed without court in two months. The legal analysis and the negotiations cost the client 15,000 UAH. (details changed)
How we work
- We check the factor: its entry in the National Bank register, the signatory’s authority, litigation and enforcement proceedings.
- We analyse the agreement: the scope of recourse, the deadlines, the full cost of the financing, the jurisdiction.
- We check the receivables: the underlying documents, the deadlines, any counterclaims and any bans on assignment.
- We prepare a schedule of objections or a new wording for the disputed clauses.
- We support performance: notices to debtors, supplementary agreements, replies to recourse demands.
- We run the dispute in the commercial court where recourse has been exercised without grounds or over-charged.
Cost of services
Court fees in 2026: a monetary claim by a company in the commercial court costs 1.5 % of the value of the claim, but not less than 3,328 and not more than 1,164,800 UAH. A non-monetary claim — for example to declare the factoring agreement or one of its clauses invalid — is 3,328 UAH. Filing through the Electronic Court reduces the rate by 20 %.
Calculate the court fee for a dispute with the factor
Declaring an agreement or a single clause invalid is a non-monetary claim: 3,328 UAH.
Questions and answers (Factoring with recourse)
Is the buyer’s consent needed to assign the claim to a factor?
The debtor’s consent is not needed, but they must be notified of the assignment in writing. Until they are, the buyer may pay the supplier and that payment is good. If the supply contract forbids assignment, the assignment itself is still valid, but the supplier is liable to the buyer for breaching that term.
What happens if the buyer becomes insolvent?
Under the recourse model the risk stays with the supplier: the factor will make a recourse demand against them, and will itself become a creditor in the insolvency or assign that right back to the client. So before assigning it is worth checking the buyer against the Unified Register of Debtors and the insolvency register, and splitting large exposures across several debtors.
Can a claim already confirmed by a court judgment be assigned to a factor?
Yes, and such a claim is valued more highly because the debt no longer has to be proved. After the assignment the factor applies to the court to substitute the party in the enforcement proceedings, and recovery continues in its favour. The recourse terms in such agreements are usually softer precisely because the debt is confirmed.
Can the factor’s recourse demand be challenged?
Yes, and the commonest grounds are that the demand was made outside the period fixed by the agreement; that it covers sums to which recourse does not extend; or that penalties have been double-counted. We prepare the reply with a calculation for each invoice separately. If the factor has already gone to court, the same arguments go into the defence.
What does a legal review of a factoring agreement cost?
A legal opinion reviewing the agreement, the recourse terms and the full cost of the financing costs from 5,000 UAH; a consultation with an oral analysis, from 1,500 UAH. For framework agreements with dozens of debtors we quote by the volume of documents after a preliminary look at the file.
Can we work with you remotely if the company is not in Kyiv?
Yes. You send documents electronically, the engagement letter is signed with a qualified electronic signature, negotiations with the factor are held by video, and procedural documents are filed through the Electronic Court. Commercial cases are run by the lawyer on a warrant, so the director does not need to attend hearings.
Contact a Svarog lawyer about factoring with recourse
Send us the draft factoring agreement and sample underlying documents for one contract: we will show you how far the factor could exercise recourse, what the financing actually costs as a percentage a year, and which clauses belong in a schedule of objections. If a recourse demand has already arrived, we will check its timing and figures before you pay anything.