Get paid in a day with freight factoring and understand the benefits and differences between recourse vs non-recourse factoring.
What’s the difference between recourse vs non-recourse freight factoring? Say you’re an owner-operator who’s interested in freight factoring because you no longer want to wait 30 days to get paid for hauling a load. You come across a few factoring companies offering different rates and notice some are recourse factoring and others are non-recourse but don’t know which freight factoring option is best.
With recourse freight factoring, you agree to sell your invoices to a factoring company that will then pay you after hauling a load (days to pay vary) however, you’re responsible for collections from your client. Recourse factoring is commonly used in factoring finance however it presents the highest risk.
Even if a recourse factoring company has taken on your invoice or provided you an advance, you are still liable if they are unable to collect from your clients. This puts your business at risk for a potential loss.
The opposite is true for non-recourse freight factoring. When you sell your invoices to the factoring company, you are not liable to collect from your clients. Instead, the factoring company pays you after hauling a load and they assume the risk if your client fails to pay. Due to this, typically a non-recourse factoring rate is slightly higher because the burden to collect is placed on the factoring company and not you.
If you’re an owner-operator or manage a small fleet, it’s usually more beneficial to choose non-recourse factoring in order to avoid a potential loss in revenue if there are complications with collections. Choosing a non-recourse factoring company like InstaPay allows you to focus on running your business and haul more loads.