The short answer
With recourse factoring, you buy back an invoice if the broker doesn't pay within an agreed period. With non-recourse, the factor absorbs the loss for covered reasons, usually broker insolvency (credit risk), not disputes about damage, shortage or service. Non-recourse typically costs more, so the question is whether the protection you'd actually get is worth the price.
"Non-recourse" sounds like complete protection. It usually isn't. This guide explains recourse vs. non-recourse factoring, what each really covers and how to decide which is right for your trucking business.
Side by side
| Recourse | Non-recourse | |
|---|---|---|
| Broker doesn't pay | You buy the invoice back | Factor absorbs it, if the reason is covered |
| Covered reasons | None | Usually broker insolvency or bankruptcy |
| Disputes (damage, shortage, late delivery) | Your responsibility | Usually still your responsibility |
| Typical cost | Lower | Higher |
| Broker credit limits | Common | Common and often stricter |
How recourse factoring works
With recourse, the factor advances you money on the invoice. If the broker doesn't pay within the period in your agreement (often 60 to 90 days), you must buy back the invoice, usually by repaying the advance from future invoices or directly. The factor's risk is lower, so pricing is usually lower.
How non-recourse factoring works
With non-recourse, the factor agrees to absorb the loss for specific reasons, most often when the broker becomes insolvent or files for bankruptcy. It does not usually cover a broker refusing to pay because of a cargo claim, a shortage, a late delivery or missing paperwork. Those disputes come back to you either way.
Questions to ask about non-recourse
- Exactly which non-payment reasons are covered? Get the list in writing.
- How long after the due date does coverage start?
- Is there a credit limit per broker, and what happens if I exceed it?
- Do I have to factor all my invoices to get non-recourse protection?
- What documents do I need to submit for coverage to apply?
Which is right for you?
| Your situation | Often a better fit |
|---|---|
| You haul mostly for large, established brokers | Recourse may be enough |
| You haul for many small or new brokers | Non-recourse may be worth it |
| You want the lowest cost and can absorb occasional losses | Recourse |
| One unpaid invoice would put you at risk | Non-recourse, after reading coverage |
Protect yourself under either model
- Check broker credit before you book. Many factors offer free credit checks.
- Get clean paperwork. A signed BOL with no exceptions prevents most disputes.
- Know your cargo coverage. Disputes over damaged freight aren't covered by non-recourse; your cargo policy may respond.
Tip: The cheapest way to reduce non-payment risk is to avoid brokers with poor payment history. Use your factor's credit checks on every new broker.
Learn the basics in what is freight factoring, then compare companies with our factoring company checklist.
Questions truckers ask
Is non-recourse factoring worth it?
It can be if you haul for smaller brokers with uncertain credit. Read exactly which non-payment reasons are covered first.
Does non-recourse cover cargo disputes?
Usually not. It typically covers broker credit risk only, such as insolvency.
What happens if a broker doesn't pay under recourse factoring?
You buy the invoice back after the agreed period, often by repaying the advance from future invoices.
Which is cheaper, recourse or non-recourse?
Recourse is usually cheaper because the factor takes less risk.
Written by the FairlyCover Editorial Team. This guide explains how coverage generally works. It isn't legal or insurance advice, and your policy wording always decides what's covered. How we write and review content.
