Choosing between recourse and non-recourse freight factoring is not always a straightforward decision. While non-recourse may appear safer at first glance, the optimal option depends on your specific business model, customer base, and risk tolerance.
Understanding the obligations and protections offered by each model is essential to selecting the right solution for your trucking business. Below, we explain the core differences to help you make an informed, strategic decision.
Key Differences in Risk and Liability
The main distinction lies in how risk is allocated—particularly in situations where your customer does not pay. However, the impact of that risk varies based on how each agreement is structured.
Who’s Responsible if Customers Don’t Pay?
In recourse factoring, you remain responsible if a customer fails to pay an invoice. The factoring company advances you funds based on the invoice, but if the customer defaults, you are required to resolve the balance. Depending on your agreement, you may:
- Substitute a different invoice of equal value
- Repurchase the unpaid invoice
- Have the balance deducted from your reserve account
In non-recourse factoring, the factoring company absorbs the risk, but typically only in cases where the customer is unable to pay due to insolvency or bankruptcy.
However, non-recourse does not apply to commercial disputes, such as:
- Claims of freight damage
- Disputes over charges or service quality
- Missing or incomplete documentation
In those cases, the responsibility for payment remains with the carrier, even under a non-recourse agreement.
Typical Timelines for Chargebacks
In recourse agreements, chargebacks generally occur within 90 to 120 days. The factoring company initiates the chargeback process if an invoice remains unpaid within the agreed timeframe.
In non-recourse agreements, the timelines are typically longer, often extending to 180 days or more. This allows the factoring company time to pursue collections and determine whether the non-payment qualifies under the non-recourse provisions.
Examples of Additional Recourse Obligations in Trucking
When a chargeback occurs under a recourse agreement, several contractual obligations may be triggered, including:
- Late Repurchase Fees – Penalties if the invoice is not repurchased within a specified period
- Extra Collection Expenses – Legal or third-party fees may be passed along if additional collection efforts are needed
- Interest on Advances – Accrued interest on unpaid advances related to charged-back invoices
- Cross-Default Clauses – If one invoice is not resolved, some contracts allow the factoring company to call all outstanding advances due
Understanding these terms before signing helps you assess how recourse obligations may affect your cash flow.
Cost Differences and Rate Considerations
The difference in cost between recourse and non-recourse factoring goes beyond just the base rate. Several variables influence the total expense.
Rate Markup for Non-Recourse Factoring
Non-recourse factoring generally carries a rate premium of 0.5 to 1.5 percent over recourse factoring. For example, if you factor $100,000 per month, a one percent difference equals an additional $1,000 monthly.
Higher-risk customers often result in a larger markup. Factoring companies conduct detailed credit evaluations for non-recourse clients and may adjust pricing accordingly.
Average Fee Ranges by Company Size
- Owner-Operators may see recourse rates between 2.5 and four percent and non-recourse rates between three and 5.5 percent
- Mid-Sized Carriers (monthly volumes in the hundreds of thousands) often qualify for lower rates due to volume and credit stability
- Large Carriers (monthly volumes in the millions) may negotiate rates below two percent for recourse and below three percent for non-recourse
Other “Hidden Costs” to Expect
All fees are typically clearly outlined in your factoring contract, so true hidden fees are unlikely. However, some may be easy to miss if you’re not sure what they mean or don’t think they apply to you.
In both models, factoring companies may sometimes charge:
- Credit check fees (typically higher with non-recourse due to added risk assessment)
- Wire transfer fees
- Account maintenance fees
- Termination fees
It’s important to review the full fee schedule before signing to understand your total cost of factoring.
Which Factoring Type Suits Your Business Model?
Choosing the right factoring type involves more than assessing risk. It requires aligning your agreement with the way your business operates.
Owner-Operators with Short-Term Contracts
If you frequently haul spot freight or work with brokers you have limited history with, non-recourse factoring may offer better protection. It helps mitigate the risk associated with working with new or unknown customers.
For smaller carriers operating on tight margins, absorbing a non-payment under a recourse agreement could significantly impact profitability. The additional cost of non-recourse factoring may be worthwhile for the added protection it provides.
Fleets with Long-Standing Broker Relationships
Fleets that primarily work with long-term, trusted brokers or shippers often prefer recourse factoring. These carriers are more familiar with their customers’ credit behavior and payment cycles, making the risk of default lower.
With established relationships, disputes can often be resolved quickly, reducing the likelihood of chargebacks. In such cases, the cost savings of a recourse model can offer greater financial efficiency.
High-Volume Shippers vs. Spot Freight Users
Carriers handling contract freight with consistent customers and payment terms may benefit from recourse factoring’s lower cost and minimal risk.
In contrast, carriers moving spot freight face greater variability in customer behavior. The unpredictability of customer credit in this segment may make non-recourse factoring a more strategic option.
Questions to Ask When Choosing Between the Two
What Triggers a Chargeback in a Recourse Agreement?
Not all recourse clauses are structured the same way. It’s important to ask your factoring provider:
- What specific conditions trigger a chargeback?
- Are there minimum payment timeframes before recourse applies?
- Will you be notified before a chargeback is processed?
Understanding these terms helps you prepare for potential disruptions and manage your cash flow with more predictability.
What Situations Are Excluded from Non-Recourse Coverage?
Non-recourse agreements may seem comprehensive, but they often contain exclusions that limit protection. Ask your provider:
- What qualifies as a commercial dispute, and how is it handled?
- Are fraud, counterfeit documents, or customer set-offs covered under the agreement?
- What documentation must be submitted to maintain non-recourse protection?
Getting clarity on these exclusions ensures you don’t assume protection where it doesn’t exist.
What Collection Support Does Each Factoring Type Provide?
Collection efforts can vary significantly depending on the factoring model:
- Recourse factoring typically includes standard collection support, with the expectation that the carrier ultimately assumes responsibility if the customer doesn’t pay.
- Non-recourse factoring often involves more robust collection strategies, since the factoring company takes on the credit risk.
Understanding how much support you’ll receive in collections can help you choose the right model based on your internal resources and customer base.
Get Factoring Solutions Designed Around Your Specific Goals
Choosing between recourse and non-recourse freight factoring is about more than cost or perceived risk—it’s about aligning your cash flow strategy with how your business functions.
At Integrity Factoring, we offer both recourse and non-recourse solutions designed around your specific goals. Whether you’re an owner-operator seeking peace of mind or a fleet with established customers looking to reduce costs, we deliver tailored factoring options backed by transparency and personal support.
Get expert guidance today. Start your application now or contact our team to find the factoring plan that fits your business best.
