Is non-recourse factoring worth the extra cost?

It depends on your risk tolerance and the brokers you work with. Non-recourse protection typically adds 1-2% to your factoring rate. If you primarily work with established, creditworthy brokers like CH Robinson, TQL, or Echo, the additional cost may not justify the limited protection it provides. If you regularly haul for smaller brokers with less established payment histories, non-recourse factoring can provide valuable peace of mind. Calculate the annual cost difference at your invoice volume to decide.

Does non-recourse factoring cover payment disputes?

No. This is the most common misconception about non-recourse factoring. Non-recourse protection typically only covers broker insolvency or bankruptcy. If a broker disputes a charge, deducts from the invoice for alleged service issues, or simply refuses to pay due to a disagreement, you are still responsible under most non-recourse agreements. Read the non-recourse terms carefully to understand exactly what scenarios are covered.

Can I switch between recourse and non-recourse?

Most factoring companies offer both options and allow you to switch, though the change may require a contract amendment and could affect your factoring rate. Some companies let you choose recourse or non-recourse on a per-invoice basis, charging different rates accordingly. This selective approach lets you use non-recourse protection for invoices from less-established brokers while saving money with recourse on invoices from highly creditworthy brokers.

What happens if a broker does not pay under recourse factoring?

Under recourse factoring, the factoring company will charge the unpaid invoice back to your account. This means they deduct the advance amount from your reserve balance or future payments. You are then responsible for collecting from the broker directly. Most factoring companies allow 60-90 days before initiating a chargeback, and some will assist with collection efforts before reverting the invoice to you.

Recourse vs Non-Recourse Factoring

What Recourse and Non-Recourse Mean

In freight factoring, recourse and non-recourse refer to who absorbs the loss when a broker fails to pay an invoice.[^1] This distinction affects your risk exposure, your factoring rate, and how much protection you actually have.

Recourse factoring means you are ultimately responsible if the broker does not pay. The factoring company will charge the unpaid invoice back to your account, and you must either collect from the broker yourself or absorb the loss.

Non-recourse factoring means the factoring company absorbs the loss under certain conditions. If a broker goes bankrupt or becomes insolvent, you do not owe the factoring company anything for that invoice.

The key phrase is "under certain conditions." Non-recourse does not mean the factoring company eats every unpaid invoice, and understanding this distinction is critical before choosing between the two.

How Recourse Factoring Works

With recourse factoring, the factoring company advances you cash for your invoices and collects payment from the broker. If the broker pays on time, everything works smoothly. If the broker does not pay within the agreed timeframe (usually 60-90 days), the factoring company charges the invoice back to you.

A chargeback means the factoring company deducts the amount they advanced from your reserve account or your future payment streams. You then own the unpaid invoice and must collect from the broker on your own.

Advantages of Recourse

Lower factoring rates, typically 1-2% less than non-recourse
More factoring companies offer recourse options
Higher advance rates are sometimes available
Simpler contracts with fewer coverage restrictions

Risks of Recourse

You bear the full financial loss if a broker fails to pay
Chargebacks reduce your available cash flow unexpectedly
Broker bankruptcies can create significant financial exposure

How Non-Recourse Factoring Works

Non-recourse factoring transfers the credit risk on qualifying invoices from you to the factoring company. If a covered event occurs, such as a broker going bankrupt, the factoring company absorbs the loss instead of charging it back to your account.

What Non-Recourse Actually Covers

This is where most carriers get surprised. Non-recourse protection is narrower than it sounds. In most factoring agreements, non-recourse covers:

Broker insolvency or bankruptcy
Sometimes broker closure or cessation of business

Non-recourse typically does NOT cover:

Payment disputes between you and the broker
Broker deductions for alleged service failures
Short-pays for any reason
Broker refusing to pay due to documentation issues
Slow-paying brokers who eventually pay but take longer than expected

Read the non-recourse clause in your factoring contract word by word. The specific definitions of "non-payment" and "credit event" determine what protection you actually have.

Advantages of Non-Recourse

Protection against broker bankruptcy, which you cannot predict or control
Peace of mind when working with less-established brokers
The factoring company is incentivized to thoroughly vet broker credit

Costs of Non-Recourse

Higher factoring rates, typically 1-2% more per invoice
Lower advance rates in some cases
Stricter broker credit requirements, meaning the factor may decline invoices from brokers they consider risky

Cost Comparison

The difference between recourse and non-recourse adds up quickly across monthly invoice volume.[^2]

On $60,000 per month in factored invoices:

Recourse at 2.5%: $1,500/month in factoring fees ($18,000/year)
Non-recourse at 4%: $2,400/month in factoring fees ($28,800/year)
Annual difference: $10,800

That $10,800 difference is the annual premium you pay for non-recourse protection. Whether it is worth it depends on how likely your brokers are to default and how much a single broker bankruptcy would cost you.

Use our factoring cost calculator to model the cost difference with your actual numbers.

Which Should You Choose

Choose recourse if you primarily work with large, established brokers with strong credit ratings. The risk of broker bankruptcy is low, and the savings on factoring rates go directly to your bottom line.

Choose non-recourse if you regularly haul for smaller brokers, newer companies, or brokers you have limited history with. The extra cost functions as insurance against the unpredictable.

Consider both if your factoring company allows per-invoice selection. Use non-recourse for invoices from smaller or less-known brokers and recourse for invoices from established brokers to optimize your costs.

For a deeper dive into factoring, including how recourse terms affect total costs, see our freight factoring guide. Compare factoring companies and their recourse options on our factoring comparison page.

Frequently Asked Questions

Is non-recourse factoring worth the extra cost?: It depends on your risk tolerance and the brokers you work with. Non-recourse protection typically adds 1-2% to your factoring rate. If you primarily work with established, creditworthy brokers like CH Robinson, TQL, or Echo, the additional cost may not justify the limited protection it provides. If you regularly haul for smaller brokers with less established payment histories, non-recourse factoring can provide valuable peace of mind. Calculate the annual cost difference at your invoice volume to decide.
Does non-recourse factoring cover payment disputes?: No. This is the most common misconception about non-recourse factoring. Non-recourse protection typically only covers broker insolvency or bankruptcy. If a broker disputes a charge, deducts from the invoice for alleged service issues, or simply refuses to pay due to a disagreement, you are still responsible under most non-recourse agreements. Read the non-recourse terms carefully to understand exactly what scenarios are covered.
Can I switch between recourse and non-recourse?: Most factoring companies offer both options and allow you to switch, though the change may require a contract amendment and could affect your factoring rate. Some companies let you choose recourse or non-recourse on a per-invoice basis, charging different rates accordingly. This selective approach lets you use non-recourse protection for invoices from less-established brokers while saving money with recourse on invoices from highly creditworthy brokers.
What happens if a broker does not pay under recourse factoring?: Under recourse factoring, the factoring company will charge the unpaid invoice back to your account. This means they deduct the advance amount from your reserve balance or future payments. You are then responsible for collecting from the broker directly. Most factoring companies allow 60-90 days before initiating a chargeback, and some will assist with collection efforts before reverting the invoice to you.

Sources & References (2)

Government

SBA — Financing Options: Invoice Factoring

sba.gov ↗

Industry

American Transportation Research Institute — An Analysis of the Operational Costs of Trucking (2023)

truckingresearch.org ↗