Learning Center
Recourse vs non-recourse factoring
Two words in a factoring agreement decide who eats the loss when a broker goes under. The distinction is real, but it is narrower than most marketing implies.
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Written and reviewed by the HaulFund editorial team · Published · Last reviewed
Educational information for transportation businesses. Not legal, tax or financial advice.
Short answer
Under recourse factoring, the carrier remains responsible for an invoice the customer never pays; after the recourse period the provider charges it back. Under non-recourse factoring, the provider absorbs losses from a defined credit event — typically the debtor's insolvency — while the carrier still carries responsibility for disputes, deductions, cargo claims and paperwork errors.
Recourse and non-recourse when an invoice goes unpaid
The branch point most carriers only discover after a customer stops paying.
Invoice is funded, then the customer does not pay
What happens next depends on which agreement you signed.
Recourse
- You remain responsible for the unpaid invoice.
- After the recourse period, the invoice is typically charged back or replaced with another invoice.
- Usually the lower headline rate, because you carry the credit risk.
Non-recourse
- The factor absorbs loss for a defined event — commonly the customer's insolvency.
- Disputes, short pays, rate discrepancies and unapproved credit are normally still on you.
- Usually a higher rate, and the covered events are defined in the contract.
"Non-recourse" is not blanket protection. Read the definition in the agreement to see which events are covered and which are excluded.
Key takeaways
- Recourse means the unpaid invoice comes back to you after a set number of days.
- Non-recourse usually covers debtor insolvency only, not slow payment or disputes.
- The controlling language is the definition of the credit event in your agreement.
- Non-recourse typically prices higher; the premium buys a narrow protection.
- Strong broker credit screening reduces the risk either structure has to absorb.
Side by side
| Recourse | Non-recourse | |
|---|---|---|
| Who bears debtor insolvency | The carrier | The provider, as defined |
| Slow payment beyond terms | Carrier, at chargeback | Usually still the carrier |
| Rate or cargo disputes | Carrier | Carrier |
| Typical pricing | Lower | Higher |
| Credit approval strictness | Moderate | Often stricter on debtors |
Read the clause literally. If it protects against insolvency only, an invoice from a broker who simply stops answering the phone may still be charged back once the recourse window closes.
Questions to ask a provider
- What exact events does non-recourse protection cover, and where is that defined?
- How many days is the recourse period?
- How are chargebacks collected — from reserve, from future funding, or by direct payment?
- Are certain debtors excluded from non-recourse coverage?
- Is there a per-debtor credit limit, and how do I request an increase?
Frequently asked questions
- Is non-recourse factoring safer?
- It transfers a specific risk — usually the debtor's insolvency — to the factoring provider. It rarely covers slow payment, rate disputes, cargo claims, or paperwork problems, so it is narrower than the name suggests.
- Does non-recourse cost more?
- It generally prices higher than recourse for the same carrier and customer mix, because the provider is accepting credit risk. Whether the difference is worth it depends on the credit quality of the brokers you haul for.
- What is a recourse period?
- The number of days an invoice can go unpaid before the provider charges it back to you. Common windows run from roughly 60 to 120 days, but the exact figure is written into your agreement.
- What is a chargeback?
- When an invoice passes the recourse period unpaid, the provider recovers the advance — usually by deducting from your reserve or from the next invoices you submit.
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Legal information notice. This content is provided for general educational purposes and is not legal advice. Contract rights, UCC matters, termination requirements, and factoring obligations depend on the applicable agreement, facts, and law. Businesses should consult qualified legal counsel regarding their specific circumstances.
HaulFund is a factoring broker and is not a direct lender or factoring provider. HaulFund connects businesses with independent third-party factoring providers. HaulFund does not make final credit, underwriting, approval, or funding decisions. Rates, fees, advance amounts, funding times, contract terms, and eligibility vary by provider and are subject to provider approval.