New authority, many unknown brokers
Non-recourse can make sense while you're building a list of brokers you trust.
Non recourse factoring: read the fine print
Non-recourse sounds like full protection. It isn't. It usually covers one thing, a broker that can't pay because it went out of business, and costs a little more for it. Here is what it covers, what it doesn't, and how to choose.
Monthly invoices
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MILE02THE DIFFERENCE
Recourse vs non-recourse
| Recourse | Non-recourse | |
|---|---|---|
| Broker goes out of business | You repay the advance | Factor absorbs the loss |
| Broker disputes the load | You repay | You usually repay |
| Broker pays very late | Charged back after the recourse period | Depends on the agreement's terms |
| Fee | Usually lower | Usually a little higher |
| Broker approval | Often required | Almost always required |
The middle row is the one most carriers miss. Non-recourse protects you from a broker's insolvency, not from a dispute about your load.
MILE03AN EXAMPLE
Two unpaid invoices, two outcomes
An EXAMPLE carrier factors two $2,000 invoices on non-recourse terms. Broker A goes out of business before paying. Broker B refuses to pay because the receiver noted damaged freight on the delivery receipt.
Invoice A is covered: the broker can't pay, which is the case non-recourse protects. Invoice B usually isn't: it's a dispute about the load, and the advance comes back to the carrier. On recourse terms, both would come back to the carrier.
NON-RECOURSE RESULT
EXAMPLE
- Broker A, insolvent
- Covered
- Broker B, damage dispute
- Charged back
Carrier repays$1,900
MILE04DECISION FLOW
Which fits you?
Answer three questions. The flow points to the option that likely fits, and why.
01Do you mostly haul for brokers you know and who pay reliably?
02Do you haul for many new or small brokers each month?
03Could you absorb one unpaid invoice without trouble?
ANSWER ALL THREE
MILE05CHECKING BROKERS
Check broker credit yourself
- Use the factor's credit check. Most factors check a broker before you book. Ask yours how, and use it every time.
- Look up the authority. Confirm the broker's MC is active on FMCSA's SAFER and that its contact details match.
- Check days to pay. Credit tools and factors often show how long a broker usually takes. Long averages are a warning.
- Watch for pressure. Unusually high rates from unknown brokers, urgent pickups and changing details are classic warning signs.
MILE06RECOURSE PERIODS
How recourse periods work
On recourse terms, every invoice has a clock. If the broker hasn't paid when it runs out, the factor charges the advance back to you, usually from your next payments.
- Know the length. It's written in the agreement. Longer gives the broker more time before it becomes your problem.
- Know the method. Most factors deduct from future advances rather than asking for a payment.
- Know the follow-up. After a chargeback, ask whether the factor keeps trying to collect and what happens if it succeeds.
MILE07READING THE CLAUSE
Read the clause in four passes
- 01Covered events. Find the exact words: insolvency, bankruptcy, ceasing operations. Anything not listed isn't covered.
- 02Exclusions. Disputes, claims, missing documents, unapproved brokers, invoices submitted late. These are where chargebacks come from.
- 03Your duties. Credit checks you must run, deadlines for submitting paperwork, notices you must give. Missing one can void the protection.
- 04What happens after. Whether the factor keeps collecting, and whether you get anything back if it succeeds.
MILE08AVOIDING DISPUTES
Keep disputes off your invoices
Since disputes usually aren't covered either way, the cheapest protection is avoiding them.
- Photograph the load. At pickup and delivery, with the seal number and the freight in view.
- Note problems on the BOL. If something's wrong at pickup, write it on the paperwork before you sign.
- Get clean signatures. Every stop, every page, with a printed name and time.
- Report delays early. A broker who hears about a delay before the appointment is far less likely to dispute the invoice.
MILE09WHAT IT COSTS
What the protection costs
Non-recourse factoring is often priced a little above recourse, sometimes around half a point to a point more, though every factor sets its own price. On an EXAMPLE $20,000 month of invoices, half a point is $100 a month, or $1,200 a year.
Ask yourself how likely a broker insolvency is on your book of brokers, and how much one would cost you. If you haul mostly for large, established brokers, the protection may cost more than it's worth.
EXTRA COST, EXAMPLE
EXAMPLE
- Monthly invoices
- $20,000
- Extra fee, 0.5 pt
- $100
Per year$1,200
MILE10WHICH FITS YOU
By situation
Steady brokers, healthy cushion
Recourse is usually cheaper, and good broker checks keep the risk low.
A few large brokers
Insolvency risk is lower; recourse is often fine.
Either way, the best protection is not hauling for risky brokers. Our dispatch desk checks every broker before an offer reaches you, and you approve every load. See freight factoring and factoring rates for the rest of the picture, or start dispatch.
MILE11FAQ
Non-recourse questions
Q01What is non-recourse factoring?
Factoring where the factor, not you, absorbs the loss if a broker can't pay in the specific cases the agreement names, most often the broker going out of business. In exchange, the fee is usually a bit higher than recourse factoring.
Q02Who pays if the broker disputes the load?
Usually you. Non-recourse protection generally covers a broker's inability to pay, not a refusal to pay because of damage, shortage, late delivery or paperwork problems. Those disputes typically come back to the carrier either way.
Q03How do I read the recourse clause?
Look for three things: exactly which events are covered (insolvency, bankruptcy, closing), how long the factor waits before charging an invoice back on recourse terms, and any conditions you must meet, like using only brokers the factor approved.
Q04Is non-recourse factoring worth the higher fee?
It can be if you haul for many small or new brokers, or if one unpaid invoice would hurt you badly. If you haul for a handful of reliable brokers and have a cushion, recourse is usually cheaper.
Q05Does non-recourse mean I never get charged back?
No. You can still be charged back for disputes, missing paperwork, or loads with brokers the factor didn't approve. Read the exceptions as closely as the protection.
Q06Can I switch from recourse to non-recourse later?
Often, by renegotiating with your factor or moving to one that offers it. Expect the fee to change. If you switch factors, check what happens to invoices that are still open.
Q07Do all factors offer non-recourse?
No. Some only offer recourse, some only non-recourse, and some offer both at different prices. Ask for both quotes if you're unsure which fits.
Q08Is non-recourse factoring good for new authorities?
It can be, because new carriers often haul for brokers they don't know yet. Weigh the extra fee against how much one unpaid invoice would hurt while you're getting started.
Q09Does non-recourse cover fraud?
Usually not in the way carriers hope. If a load was booked through a fraudulent or double-brokered setup, many agreements exclude it. Checking the broker before you book is still the best protection.
Q10What documents protect me in a dispute?
A signed rate con, a clean signed BOL or proof of delivery for every stop, photos at pickup and delivery, and any notes about problems written on the paperwork at the time. Good records settle most disputes before they reach a chargeback.
Q11How long is a typical recourse period?
It varies by factor and is written in the agreement, often somewhere around 60 to 90 days from the invoice. After that, an unpaid recourse invoice is charged back to you.
See my factoring rate
We refer carriers to a factoring partner and may be paid for referrals.