Non Recourse Factoring vs Recourse Factoring - OTR Solutions

Non Recourse Factoring Vs. Recourse Factoring: The Best Factoring Program For You

Welcome to the world of freight factoring, a vital service in the trucking industry that revolutionizes how trucking companies manage their cash flow. 


Freight factoring, simply put, is when a business sells its invoices to a factoring company like OTR Solutions at a discount. This service provides immediate cash flow to the carrier, crucial for maintaining smooth operations, as well as puts some of the collection burden on the factoring company. Whether you’re new to trucking or a seasoned pro, understanding freight factoring is key to financial stability. 


In this article, we’ll explore the different types of freight factoring, including non-recourse and recourse factoring, and help you determine which is best for your trucking business.


Benefits of Freight Factoring for Trucking Businesses

Freight factoring offers many advantages for trucking businesses. 


  1. It improves cash flow, reliability and consistency. Instead of waiting for clients to pay, trucking companies receive funds quickly, often within a day. You don’t have to work with different brokers who have different payment terms and schedules.  This immediate access to cash is essential for covering urgent expenses like fuel, maintenance, and payroll. 
  2. Freight factoring reduces administrative burdens. Companies like OTR Solutions handle invoice processing and collection, allowing truckers to focus on the road and growing their business.
  3. Freight factoring provides flexibility.  With the right freight factoring company, trucking businesses can choose the best factoring programs that suit their unique needs, whether it’s non-recourse factoring for added security or recourse factoring for lower fees.
  4. Industry expertise. Factoring companies have a ton of experience helping new authorities get off the ground and become successful. Many companies have tools in place other than factoring to give their carriers as much of an advantage as they can.


The use of freight factoring services can be a game-changer for trucking businesses. These advantages make factoring an invaluable tool for sustainable growth in the competitive world of trucking.


Comparing Freight Factoring Programs

Before understanding which freight factoring program is best for you, check out our post about the benefits of a using factoring company.


Recourse Factoring Or True Non-Recourse Factoring?

You may be on the hunt for a freight factoring company and have heard different terms thrown around like reserves, chargebacks, recourse and non-recourse factoring. Not every factoring company has the same program and not every company does it the same way. So, let’s truly understand what all the talk is about when these sales reps give you a call. 


Recourse Factoring Program 

In a typical recourse factoring program, you have a set factoring fee, a separate reserve, and a set chargeback date. Recourse means “a source of help in a difficult situation,” being that the source of help is your freight factoring company and the difficult situation is your cash flow. In a recourse program, you are essentially borrowing the money from your factoring company for an extended period of time. However, if the factoring company does not collect on the payment from the broker, then you are hit with a chargeback. A chargeback means that you are charged for any uncollected funds from the brokers, typically between 60-90 days. Many factoring companies will hold separate funds rather than charging you directly for any unpaid invoices. A reserve is a percentage of money held to cover any unpaid invoices. When an invoice is paid normally to a factoring company, the reserve percentage that was held is released back to you. This means that each time you factor a load, there is always money entering and exiting your account. 


The Advantage of a True Non Recourse Factoring Program

In a true non-recourse program, there are no chargebacks, no separate reserves held, nor a recourse/chargeback date. It’s simple; you submit your invoice to the factoring company, and you get paid. After the load was cleanly delivered and the invoice is accepted by the factoring company, it is the responsibility of the factoring company to handle all billing and collections on the invoice. If something goes wrong with the broker not paying on a load, the best example being bankruptcy, the factoring company takes on the responsibility to cover the invoice, so you don’t have to. In a true non-recourse program, at no point will you be hit with a chargeback due to a broker’s inability to pay. Once the funds are in your bank account, they are yours to keep no matter what. 


The Factoring that Other Factoring Companies are Offering

Other factoring companies may market a recourse program as a “non-recourse program.” However, recourse terms still exist at 60-90 days, also known as a hybrid non-recourse program. This, in fact, is still a recourse program, but if the broker doesn’t pay within 60-90 for any reason, the invoice will be charged back to your trucking company. Often times these chargebacks are non-negotiable, so you can find yourself in a very tough situation if you are depending on that money for either business or personal needs. This type of hybrid program can be difficult to catch. So it is important to look into a factoring offer for more than just the rate. Before choosing your freight factoring company, ask them if they will notify you before a chargeback hits. Because your company could be at risk if a chargeback hits and you weren’t prepared for it.


As you are looking at different factoring companies and factoring programs to see which one is best for your trucking company, be sure to understand the full details of your program. Don’t get tricked into thinking the separate reserve is an additional savings account that your factoring company holds. Ask yourself, “do I have access to this reserve 24/7?” because the answer is most likely no. In our true non-recourse program, we take on the responsibility of getting you paid the same day/next day and handle the billing and collections from there. 


Secure Your True Non-Recourse Factoring with OTR Solutions

Sign up for easy cash flow and worry-free factoring with OTR Solutions, the leading provider of true non-recourse freight factoring services. Apply today and transform the way you manage your finances!


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FAQs: Understanding Freight Factoring with OTR Solutions

What’s the Difference Between True Non-Recourse Factoring and Recourse Factoring?
True Non-recourse factoring means the factoring company assumes the risk if a client doesn’t pay, while recourse factoring involves potential chargebacks to the trucker for unpaid invoices.  


True Non-Recourse tends to have higher rates than regular recourse programs because of that extra back-end risk that the factoring company takes. 


We recommend that all owner operators and new authorities who are working with slimmer margins take advantage of True Non-Recourse to prevent the risk of not getting paid for any amount of reasons for work they’ve already completed. 


For the bigger fleets who can survive not getting paid on a handful of invoices, a traditional recourse program is probably going to be your better option.


How Does Freight Factoring Improve My Cash Flow?
Freight factoring provides immediate payment for your invoices, allowing you to access cash quickly for essential expenses, instead of waiting for clients to pay.  This gives consistency and reliability for payroll, bills, and any other expenses you may have.


Can Freight Factoring Reduce My Administrative Work?
Yes, companies like OTR Solutions manage invoice processing and collections, freeing up your time to focus on driving and maintaining your business.


Is Freight Factoring Suitable for All Trucking Businesses?
Absolutely. With various factoring programs like non-recourse and recourse factoring, businesses can choose the option that best aligns with their needs and risk preferences.


Why Should I Choose OTR Solutions for Freight Factoring?
OTR Solutions offers True Non-Recourse Factoring without hidden fees or chargebacks, providing a reliable and stress-free factoring experience for truckers.  


But factoring with OTR Solutions also gets you:


  • A Dedicated Operations Team 
  • The Best Customer Service
  • A Trucker Fuel Card
  • Mobile App and Fuel Finder
  • Load Board,  Compliance and Insurance Discounts through DAT etc
  • And so much more!


Get Started with Stress-Free Factoring

Start taking advantage of the many benefits of freight factoring with OTR Solutions. Experience fast, reliable payments and excellent support tailored for truckers.


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