Recourse vs. non-recourse factoring

With recourse factoring, you buy back any factored invoice the broker never pays. With non-recourse factoring, the factor takes the loss in the cases your agreement covers, usually when an approved broker becomes insolvent or bankrupt. Disputes and paperwork problems usually stay your responsibility, and non-recourse usually costs more. Most trucking factoring is recourse.

Either way, the factor advances you the money up front and collects from the broker. The main difference is what happens when the broker’s payment never comes.

Recourse vs. non-recourse at a glance

	Recourse	Non-recourse
If the broker never pays	You buy the invoice back	The factor takes the loss, in the cases the agreement covers
What it usually costs	Less	More
Which brokers	Any broker the factor accepts	Often only brokers the factor approves
What’s covered	Nothing; you carry the credit risk	Usually only a broker that can’t pay (insolvency or bankruptcy)
Disputes, short pays, missing paperwork	Your responsibility	Usually still your responsibility
How common in trucking	Most common	Less common

How recourse factoring works

You factor an invoice and get your advance as usual. If the broker pays, nothing else happens. If the broker still hasn’t paid after the period your agreement sets, you buy the invoice back. Some factors call this a chargeback and take it out of a future funding instead of asking for cash.

Recourse costs less because the factor isn’t pricing in the chance that a broker goes under. You can lower that risk by checking a broker’s credit before you book the load.

What non-recourse really covers

Non-recourse sounds like full protection, but most agreements cover only a broker that can’t pay because it’s insolvent or bankrupt. They usually don’t cover these:

• Disputes. The broker says the freight arrived damaged, late or short.
• Paperwork problems. The BOL is missing a signature, or the invoice doesn’t match the rate confirmation.
• Short pays. The broker pays part of the invoice and deducts the rest.
• Brokers the factor didn’t approve. Coverage often applies only to brokers on the factor’s approved list.

Under a typical non-recourse agreement, those losses are still yours. Read how the agreement defines a covered loss before you pay extra for it.

Which one fits your trucks?

When recourse fits

• You haul for brokers you know, or you check every new broker’s credit before booking.
• You want the lower fee.
• You book loads from a wide mix of brokers, including ones a non-recourse factor might not approve.

When non-recourse is worth asking about

• One or two brokers bring in most of your revenue, and losing one of them would put you out of business.
• You want protection against a broker’s insolvency or bankruptcy, and your factor confirms that broker is covered before you haul.

For most owner-operators and small fleets, recourse factoring plus a credit check on every new broker is the lower-cost way to protect yourself.

Questions to ask a factor

1. Is your factoring recourse or non-recourse by default?
2. With recourse, when would I have to buy back an invoice? Do you take it out of a future funding, or do I pay in cash?
3. With non-recourse, what counts as a covered loss? Ask for the definition in writing.
4. What does non-recourse cost compared with recourse, in dollars, on one of my invoices?
5. Which brokers does non-recourse cover?
6. Will you check a broker’s credit before I haul?

Recourse and non-recourse at FFS

FFS factors with recourse by default. To protect against a broker who doesn’t pay, you can add credit insurance. Non-recourse factoring is available on request. Call us and we’ll explain what it covers and what it costs.

New carriers pay a 2.9% flat fee on recourse factoring and get a 97.1% advance, with no minimums and no invoice fees. FFS checks a broker’s or shipper’s credit for free, so you can turn down a bad payer before you book the load.

Get a quote or call (813) 773-4002.