What's the difference between recourse and non-recourse factoring?
This is a common question people ask when trying to understand the different types of factoring. When you use a freight factoring company you agree to factor the amount of a freight invoice, allowing you to get paid quickly. Let's explore the differences between recourse and non-recourse types of factoring finance.
Recourse factoring is commonly used in factoring finance however it presents the highest risk for borrowers. Even if a recourse factoring company has taken on your invoice or you have received an advance, you are still liable if they are unable to collect debts from your clients. This can be problematic for your cashflow and warrant unexpected debt. Many factoring companies provide recourse factoring.
Companies often offer additional services such as credit checks, accounts receivable management, etc. to help you manage the risk. However, this won’t give you a 100% protection against non-payment and present additional cost.
With a non-recourse rate a factoring company handles collection and this assumes the risk if your client fails to pay. You get paid and the provider deals with the client. Typically a non-recourse factoring rate is higher because the factoring company, not you, has to manage addtional risks and keep all the records.
If your business depends on a few large customers non-recourse factoring will protect you from losing your business in the event that one of your customers goes bankrupt. Furthermore, you will save time and nerves as you won't have to keep track of all you records, since the collection is done by a factoring company.
Business owners have a lot of risks to manage. Therefore, any additional risks create a headache. There are several instances when non-recourse can save you time and nerves.
In case you are ready to assume the risk of non-payment and would like to have lower factoring rates, then recourse factoring is your solution. Remember to also read the fine print and see if you are personally guaranteeing the recourse or if your company is on the hook for recourse factoring. It’s one thing if your business takes a hit, another if your personal credit is impacted due to a supplier’s non payment.
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InstaPay by Trucker Path offers a flat non-recourse 3.5% rate per load. We don’t require you to factor all of your loads with us or to commit to a particular volume. We don’t charge any additional fees. With the non-recourse rate, InstaPay will collect the payment from your client, giving you more time to focus on your business. InstaPay provides you with low-rate factoring finance that gets you paid quickly with full transparency. We believe in providing exceptional customer service to our truckers and we look forward to earning your business!