Recourse vs. Non-Recourse Factoring

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The truck factoring process begins by knowing the differences between recourse and non-recourse factoring. When choosing the truck 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?

The answers to these questions are dependent upon your trucking company’s decision to use a recourse or non-recourse factoring company.

Many factoring companies offer both options. The first thing to keep in mind is that a non-recourse program will have slightly higher fees than recourse.

Both recourse and non-recourse factoring have obvious advantages, but sometimes not-so-obvious disadvantages. Although non-recourse sounds like the less risky option for your trucking company, the cost is usually higher.

To help make this decision easier for you, we’ve created an infographic below comparing these two types of programs so that you can find out which one is best suited for your business.

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What’s Right for Your Trucking Company?

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 the 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.

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 that are using freight factoring to increase cash flow. Recourse factoring fees are lower, so if immediate costs are an issue, then this may be a better option for your business.

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.

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.

What factors should businesses consider when deciding between recourse and non-recourse factoring?

Businesses should consider the level of risk they are willing to take on and their priority in terms of immediate costs versus long-term protection. Non-recourse factoring is suitable for businesses that want to protect themselves from the financial effects of clients failing to pay on time, but it comes with higher fees. Recourse factoring, on the other hand, offers lower fees but holds the business accountable for losses if clients fail to pay. Ultimately, businesses should choose the program that aligns best with their specific needs and priorities.

Understanding Your Contract Terms

Fully discussing your terms with your factoring company, whether you choose recourse or non-recourse factoring, is the only way to ensure you know what is expected of you in the future.

Factoring with EZ Freight Factoring will help you develop a relationship with a factor that is beneficial to you. As a trucking business owner, you’re busy with so many other things and you’ll want to be involved with a factoring company that you can trust and that has a solid, strong contract.

Five Reason to Factor Freight Bills:

  1. Get cash fast to move your business forward.
  2. Protect against seasonal downturns and slumps in sales.
  3. No long term contracts or volume minimums.
  4. Additional perks such as fuel cardsfuel advances, free load board access, back-office support, and much more.
  5. Flexible freight bill factoring options

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