Categories of Factoring: Recourse vs. Non-Recourse

Categories of Factoring: Recourse vs. Non-Recourse

Non-Recourse Factoring: a factoring agreement which, if the Debtor does not pay the invoice due to an insolvency during the recourse period, the factoring company assumes the risk of non-payment.

Non-Recourse Factoring protects in one circumstance only; failure of payment by reason of a customer becoming insolvent.

Non-Recourse Factoring is perhaps the most misunderstood form of invoice factoring. It is generally presented as a no risk option to protect a trucking company should a customer fail to pay their invoice for any reason. It is commonly understood that the factoring company is responsible to absorb the loss leaving a trucking company free and clear of encumbrances. In reality, Non-Recourse Factoring protects in one circumstance only; failure of payment by reason of a client’s customer becoming insolvent. If non-payment is due to any other reason, the client must pay back advanced funds, plus penalties to the factoring company.

It is imperative to understand the full extent of the terms governing a Non-Recourse agreement before you sign a contract. This unfortunately is not an easy task; Non-Recourse factoring agreements often do not contain the full terms of the contract. Instead, the contract references an additional set of terms that exist in an online document. It is left up to the carrier to navigate to this document, read it and understand its implications before signing the agreement.

A publicly posted website, containing the terms and conditions that apply to a Non-Recourse factoring agreement, includes the following definition:

“Non-Recourse Credit Guarantee” – means the assumption by Purchaser (the factoring company) of the risk of non-payment on certain Purchased Accounts identified by Purchaser, so long as the cause of non-payment is solely due to an Account Debtor (the carrier’s customer) becoming Insolvent.

According to the meaning spelled out in this definition, the only financial protection a carrier receives against non-payment is if the carrier’s customer becomes insolvent. If the invoice is not paid for any other reason, such as a service dispute, poor quality documentation, or any number of other issues, the carrier is liable and must repay the factoring company.

The incidence of a customer failing to pay due to insolvency is statistically low. Therefore, the protection provided by Non-Recourse is minimal.

The incidence of a customer failing to pay due to insolvency is statistically low. Therefore, the protection provided by Non-Recourse is minimal, yet the cost is generally 25% to 35% higher than Recourse Factoring, Recognizing this specific detail is important to understanding the extreme limits to the perceived value of Non-Recourse Factoring.


Recourse Factoring: a factoring agreement in which a company sells its invoices to a factoring company with the understanding that if the invoice exceeds the factoring period (usually 60 to 90 days) and remains unpaid for any reason, the company will buy them back.

Recourse factoring provides greater value than Non-Recourse and is the preferred choice by owners of trucking companies.

Recourse is the most commonly used form of invoice factoring by trucking companies. Although it appears less advantageous to a business, Recourse Factoring provides greater value than Non-Recourse and is the preferred choice by owners of trucking companies.

Advantages include:

  • a bar graph showing the benefits of recourse and non-recourse factoringFees are typically a third cheaper than Non-Recourse Factoring
  • Diligent account receivable management by experienced factoring companies significantly reduces the incidence of unpaid invoices to few and far between.
  • Freight Factoring Companies record a high success rate on freight bill collections.
  • Fewer credit restrictions allow a trucking company to haul for a larger pool of customers.
Figure 1-1: Advantages of Recourse Factoring

Learn more about Recourse Factoring and to understand why it has become the preferred choice of trucking companies.


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