Recourse vs. Non-Recourse Factoring: What’s the Difference?

Factoring your accounts receivable begins by recognizing the differences between recourse and non-recourse factoring. When choosing the factoring route that best suits your business, you may be wondering:

  • What happens if my client doesn’t pay, or can’t pay an invoice I sold to a factoring company?
  • Who is held accountable for their non-payment?

Well, the answers to these questions are dependent upon your company’s decision to use a recourse or non recourse factoring company.

Recourse Factoring

In a recourse factoring agreement, your trucking company is responsible for buying back invoices that aren’t paid by your customers after a pre-determined 45, 60, or 90 day period. Recourse factoring allows factoring companies to avoid accountability if your clients withhold payment due to bankruptcy or go out of business. Since your company is responsible for taking the loss and offers the factor the least amount of risk, this agreement is the most affordable option for businesses who are using freight factoring to increase cash flow. Recourse factoring fees are lower, so if a low fee is important, this is the option you’ll want to check out first.

Recourse is the best option if your customers generally pay in a timely fashion. To reduce the risk of paying back unpaid invoices, factoring companies offer credit checking for all current and prospective customers. While these credit checks reduce the chance of non-payment, you are ultimately responsible for any invoices that your clients leave unpaid.

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Non-Recourse Factoring

In a non-recourse factoring agreement, the factoring company assumes the risk of non-payment if your customer fails to pay outstanding invoices. Non-recourse factoring protects trucking companies from customer insolvency and places responsibility of repayment on the factor. As a result, factoring companies will charge a higher fee for non recourse factoring. As always, fees are dependent on volume, but the average fee for non-recourse ranges from 3%-5%.

Trucking companies who rely on few, but large, customers find that non recourse factoring protects them from detrimental financial effects that occur if these clients fail to pay the factor on time. If you don’t want to take on the risk of liability, non-recourse truck factoring may be the better play for your business.

Factoring Programs with Ultimate Flexibility

With both recourse and non-recourse funding options, trucking companies have the flexibility to choose the program that works best for them. Once you begin to factor, a specialized funding program will be designed based on your customers and the state of your trucking business. We are committed to providing the best factoring services possible and are happy to work with trucking companies to create the most flexible freight bill factoring program for your exact needs.