When choosing which transportation factoring company to use, it’s important to understand the differences between recourse and non-recourse factoring. Knowing more about your options will help you make the best decision for your company.
Recourse Factoring – The factoring company will an buy invoice from you and collect payment on the bill from your customer. If the customer doesn’t pay the bill, then the factoring company can sell the invoice back to you.
Non-Recourse Factoring – The factoring company buys an invoice from you and collects payment on the bill from your customer. If the customer doesn’t pay the bill, the factoring company is stuck with the unpaid invoice.
While non-recourse factoring may immediately sound less risky for your trucking company, it isn’t necessarily the better option. In fact, recourse factoring offers plenty of advantages over non-recourse factoring.
Advantage 1: Lower Rates
Since recourse factoring involves less risk for the factoring company, it can offer better rates. That means you get more money upfront and more money in your pocket.
Advantage 2: Credit Checks
Recourse factoring companies typically offer detailed credit checks on all your potential customers. (This is standard practice at TFG.) This allows you to make wise decisions about which loads you will accept. These credit checks are designed to reduce the risk of non-payment so you won’t get stuck with the bill. With non-recourse factoring, you often won’t know the credit history of your customer.
Advantage 3: Better Relationships
A recourse factoring company doesn’t want to sell invoices back to you. If a factor sells back every invoice, they won’t stay in business for long. A good recourse factoring company will work hard to collect a bill so you don’t go elsewhere for your factoring needs.
Advantage 4: More Cash Flow for Your Company
A non-recourse factoring company has to be very particular about which invoices they will buy from you. With recourse factoring, you can sell more of your invoices, and do so at lower rates. That means you can take more jobs and earn more in the long run.
Still have questions about how recourse factoring can help you? Contact us today to learn more.