If you’ve shopped around for a factoring company, you’ve likely encountered the terms recourse and non-recourse. These terms describe different types of factoring services.
For carriers considering factoring, knowing which service is right for your company can make a significant difference to your budget in the long run.
What Is Recourse Freight Factoring?
Recourse factoring is the more common of the two services. For most cases, it’s also more affordable. Here’s how it works:
- You submit your Bill of Lading and invoice to a factoring company.
- They advance you a quick payment, typically within 24 hours.
- When your customer pays, the factor collects their fee and forwards the remaining payment.
Sounds like the factoring process you’re familiar with, right?
Here’s where recourse factoring differs from non-recourse factoring: If your customer fails to pay the invoice, you will assume responsibility for paying the factoring company. In other words, the factoring company now has recourse to collect from you, hence the name.
In exchange for this assumed risk, recourse factoring is typically less expensive.
What Is Non-Recourse Freight Factoring?
Now that you know recourse factoring, you can imply non-recourse factoring as the opposite: If the customer fails to pay the invoice, the factoring company will pay for you.
This sounds wonderful, but there is a catch.
Most non-recourse factoring contracts cover non-payments only for a few reasons, usually bankruptcy or the customer going out of business. For trivial cases, like lost paperwork or slow payments, the carrier is still liable for non-payment.
Regardless, non-recourse factoring can save carriers in tight spots. In exchange for assuming the risk, non-recourse factoring requires a higher fee.
So, What Is the Difference Between Non-Recourse and Recourse Freight Factoring?
To recap: the difference between non-recourse and recourse factoring is who is liable for non-payments.
- In recourse factoring, the carrier is responsible for unpaid invoices.
- In non-recourse factoring, the factoring company assumes liability, but only for non-payment attributed to credit risk, like bankruptcy
Which Type of Factoring Is Better for Your Fleet?
Both varieties of factoring are viable options. The model you choose depends on your needs:
- If you work with a portfolio of long-time customers, most with a reliable history of steady payments, you’ll probably benefit from the lower fees associated with recourse factoring.
- If you’re primarily working in new lanes with unfamiliar brokers, non-recourse factoring can shield you from repeated headaches.
No matter which program you select, freight factoring is an essential tool for carriers to cover fuel, maintenance, and administrative expenses without being held up for 30-60 days for payment.
Now that you know the answer to what is the difference between non-recourse and recourse freight factoring, you can better align your goal with your factoring strategy.
If you’re ready to begin freight factoring with a company that offers fuel discounts, tire discounts, and renowned customer service, get started here.
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The England Carrier Services (ECS) division offers a range of services for carriers, from maintenance to support. As ECS members, carriers have access to nationwide discounts on fuel and tires from dedicated team members committed to finding the best price. ECS also provides factoring services with benefits such as same-day funding to a bank account or fuel card. These options allow carriers to focus on growing their businesses while saving time and money.