Getting paid shouldn’t feel like a gamble, but that’s exactly what can happen if you don’t understand how freight factoring works. Choosing recourse vs. non-recourse factoring determines who takes the hit if a broker doesn’t pay an invoice, whether that’s your business or your factoring company.
With recourse factoring, you’ll pay lower rates but carry the financial risk if a customer fails to pay. On the other hand, non-recourse factoring costs a bit more but protects your business when brokers go out of business or can’t pay. In this guide, we’ll break down the pros and cons of each and explain why OTR Solutions’ True Non-Recourse Factoring stands apart from the rest.
Key Takeaways:
- Recourse factoring charges lower rates – but makes you responsible for unpaid invoices
- Non-recourse factoring costs more – but protects you from broker bankruptcy and credit insolvency
- True Non-Recourse factoring means no chargebacks – and no hidden fees buried in fine print
- OTR Solutions offers both options – so you can choose what fits your operation
What is Recourse Factoring?
Recourse factoring is a type of invoice financing where your business remains responsible for any invoice your customer doesn’t pay to the factoring company. It offers fast access to cash but shifts the financial risk back to you if the broker or shipper fails to pay.
How It Works for a Trucking Company
You haul a load and submit the invoice to your recourse factoring company. The company advances you most of the invoice value (typically 95% to 97%)and then collects full payment from your customer, whether that’s a broker or shipper.
The catch comes if your customer fails to pay within the set recourse period, usually 60 to 90 days. In that case, you must either buy back the unpaid invoice or replace it with a new one of equal value to cover the debt.
Key Considerations for Recourse Factoring
Recourse factoring can be a smart choice for carriers working with strong broker networks, but it’s important to understand how it works for your business.
| What to Consider | How It Affects You |
|---|---|
| Lower Factoring Rates | Factoring companies charge lower rates because the risk remains with you. |
| Higher Advance Rates | You may receive a slightly higher initial cash advance. |
| Easier Qualification | Finding a recourse factoring partner can be easier since they carry less risk. |
| Financial Responsibility | The entire financial risk of a non-paying customer falls on your shoulders. |
| Chargeback Risk | A single chargeback can create a sudden and unexpected hole in your budget, disrupting your operations. |
| Potential for Bad Debt | You could end up doing a job for free and still owe the factoring company, putting your business in a vulnerable position. |
What is Non-Recourse Factoring?
Non-recourse factoring is a type of invoice financing where the factoring company assumes the financial risk if a customer fails to pay due to credit issues. It provides extra protection by shifting the burden of nonpayment away from the carrier.
How It Works for a Trucking Company
You haul a load for an approved broker or shipper and submit the invoice to your non-recourse factoring company. The factoring company advances you a percentage of the invoice amount, typically within 24-48 hours, and then handles the collection process directly with your customer.
If the customer becomes bankrupt or credit insolvent, the factoring company absorbs the loss. You keep your advance and owe nothing back, providing predictable cashflow for your business.
Key Considerations for Non-Recourse Factoring
Non-recourse factoring offers added protection for truckers who can’t afford to lose money if a broker doesn’t pay. Understanding how it works helps you decide if it’s right for your operation.
| What to Consider | How It Affects You |
|---|---|
| Bad Debt Protection | Your business is protected from customers who go out of business or can’t pay. |
| Predictable Cashflow | You can operate with confidence, knowing that the cash you’ve received is yours to keep. |
| Focus on Operations | Frees you from the stress of collections, allowing you to focus on finding and hauling profitable loads. |
| Higher Factoring Rates | To cover the additional risk they assume, factors charge slightly higher rates than recourse providers. |
| Customer Credit Approval | Factoring companies will only factor invoices for customers like brokers and shippers who meet their credit standards. |
Note: Not all non-recourse programs are created equal. OTR Solutions offers True Non-Recourse Factoring with no hidden fees and no chargebacks. Once you’re paid, the money is yours to keep.
Key Differences Between Recourse and Non-Recourse Factoring
The main difference between recourse and non-recourse factoring is who takes the loss if your broker doesn’t pay the invoice.
| Key Difference | Recourse Factoring | Non-Recourse Factoring |
|---|---|---|
| Liability | You’re responsible for unpaid invoices | Factoring company covers approved non-payment |
| Risk Level | Higher risk for carrier | Lower risk for carrier |
| Cost | Lower fees (typically 1–2%) | Higher fees (typically 2.5–3.5%) |
| Best For | Experienced fleets with reliable brokers | Owner-operators or new carriers needing protection |
| Payment Security | Subject to chargebacks | Protected against broker bankruptcy |
Note on factoring rates: Your specific rate depends on factors like your business size, freight volume, and broker relationships. Recourse factoring typically costs 1-2%, while non-recourse factoring generally ranges from 2.5-3.5%. These differences help you choose the right factoring company for your operation.
How to Choose Between Recourse and Non-Recourse Factoring
Choosing between recourse and non-recourse factoring depends on your risk tolerance, cashflow needs, and broker network. Here’s what to consider when making your decision.
Risk Tolerance
If you can’t afford to buy back invoices, choose non-recourse. One bad load shouldn’t wipe out weeks of profit.
Customer Creditworthiness
If you only haul for top-tier brokers with proven payment histories, recourse may work fine. But keep in mind that even established brokers can face financial trouble without warning.
Budget
Weigh the cost difference against the potential risk of chargebacks. The money you save on lower fees disappears fast when you have to buy back even one unpaid invoice.
Business Size
Owner-operators and small fleets benefit most from protection. When you’re running a lean operation and facing the same trucking industry challenges that impact carriers of all sizes, one chargeback can create serious cashflow problems that affect your entire business.
What True Non-Recourse Factoring Means
True Non-Recourse Factoring is OTR Solutions’ guarantee that you will never receive a chargeback for a factored invoice due to customer credit insolvency.
Not All Non-Recourse Is the Same
Some companies advertise non-recourse factoring but hide exceptions in the fine print that can mean you receive chargebacks anyway. They’ll claim protection while creating loopholes for disputes, documentation errors, or other issues that suddenly make unpaid invoices your problem again.
OTR’s promise is straightforward: if we approve the broker and they can’t pay due to credit issues, that’s our problem, not yours. Protection applies only when working with brokers approved to factor with OTR Solutions.
The Benefits of Partnering with OTR Solutions
OTR’s True Non-Recourse Factoring protects your business while giving you the tools and support to run more efficiently.
- No Chargebacks, Ever: Get fast, reliable cashflow without the hassle of chasing brokers for payment or the fear of sudden chargebacks.
- Expert Broker Vetting: We run comprehensive credit checks on brokers and shippers, so you know you’re working with reliable partners before you even accept a load.
- Dedicated Account Team: You get a dedicated team that helps you manage your invoices and cashflow every step of the way.
- Integrated Tools: This protection pairs with powerful tools that make your life easier. Submit invoices from anywhere using the OTR Mobile App, track payments in real time through the OTR Client Portal, and improve your bottom line with the OTR Fuel Card that saves you an average of $0.50 per gallon at over 2,500 in-network locations.
Make the Smart Choice for Your Trucking Business
Recourse factoring’s lower fees might seem appealing at first glance, but the financial risk it places on a trucking business can be great. A single unpaid load can wipe out weeks of profit and hard work.
True Non-Recourse Factoring isn’t just a service; it’s a financial safety net that provides the stability and peace of mind needed to run a successful trucking operation. When you combine financial protection with smarter fleet and fuel management through options like fuel credit or prepaid fuel cards, you create a complete cashflow system that keeps your operation moving forward.
Stop gambling with your revenue. Partner with a factoring company that has your back. Apply for OTR Solutions’ True Non-Recourse Factoring today and secure your financial future.
FAQs About Recourse vs. Non-Recourse Factoring
Is non-recourse factoring worth the higher fee?
For most small trucking businesses, yes. The protection often outweighs the slight increase in cost.
Can a factoring company still charge me under a non-recourse plan?
You should only be charged if the invoice issue is unrelated to credit, such as a dispute, a missing POD, or a delivery error; however, it’s important to keep an eye out for hidden fees in your contract.
How can I tell if it’s a true non-recourse program?
Ask if you’re ever responsible for chargebacks or reserves after payment. If yes, it’s not truly non-recourse.
Does OTR offer both types of factoring?
Yes, OTR offers both recourse and True Non-Recourse programs, so carriers can choose the plan that fits their needs. Just like the OTR Fuel Card, whether you prefer fuel credit for flexibility or prepaid options for budget control, you can select the best factoring approach for your operation.