Recourse Vs Non-Recourse (Freight Factoring)

Recourse Vs Non-Recourse (Freight Factoring): 

I am amazed by how many Carriers think this is the single most important thing when it comes to Freight Factoring and getting paid on your loads... because it isn't, and I'd like to tell you why.

What is Recourse? Well, the Freight Factoring Company purchases Rate Cons from Carriers from loads that have been delivered and completed. The Carriers get paid ASAP the day the load is delivered, and the Freight Factor does the invoicing, billing, and collections on that Rate Con that they bought from the Carrier. Then, the Broker pays the Freight Factor in 30, 60, or 90 days. Carriers sign a contract with the Freight Factoring Company and that contract can be “recourse”. This means that if the Freight Factor does not get paid on the Rate Con that they bought from the Carrier within 90 days of delivery, the Freight Factor, with the recourse contract, has the right to take back (chargeback) the money from the Carrier that they paid the day the load was delivered (the advance or Factored load). Why? Because the load they bought from the Carrier apparently isn’t worth anything. It would appear to the Factor that the Carrier sold them something worth ZERO dollars because the Broker isn’t paying up. So at this point, 90 days later, the Freight Factor wants their money back on this worthless load and does what's called a "chargeback" and gets their money back from the Carrier. At this point, the Carrier needs to call that Broker ASAP and get themself paid for the Load they ran.

Now that is what's called Recourse. A Non-Recourse Factoring Contact is the opposite of recourse. The Factoring Rate (discount rate) is typically more expensive for obvious reasons because with a Non-Recourse Contract, the Freight Factor will not collect the money back if the Broker doesn’t pay.

But here's the real focus with Recourse and Non-Recourse... it comes down to Non-Recourse being more expensive for Carriers and Recourse being cheaper. YOU are a business owner: you are going to do everything you can to protect your business. When a Freight Factor gives you a Recourse Contact, they are going to give you tools and resources to help make sure you're going to be working with "good" Brokers. "Bad" Brokers are the ones that don’t pay their bills at the end of 30 days. Why jeopardize your business by working with shady businesses that can't pay their bills? You shouldn't. Every Broker is analyzed and given a credit score by Freight Factors. There are two very popular tools and resources that your Freight Factor is going to give you for FREE when you sign up to use their factoring service: 1.) factorfox.com and 2.) factorsnetwork.com. 

There is a process (A to Z) you need to follow when it comes to buying loads from Brokers and these two websites are your first line of defense to qualify and vet Brokers before you accept loads that you're going to run for them. These websites are used to check the Broker's Credit Score. Let's go over the A to Z process...

A.) You see a load posted on the DAT Load Board. You look to find their listed MC#. Copy and paste that MC# into one of these websites (they work as a database). The website will say "Broker Approved" or "Broker Denied."

B.) If the website says "Broker Approved" then call the Broker and discuss the load and what price they can pay. If the website says "Broker Denied" then that's a shady Broker that isn't paying their bills. No one should be working with bad Brokers that are selling shady loads: in doing so you put yourself at risk of harming your own business.

That's why the Freight Factor you're using has these websites available for you to use to be that first line of defense to protect your business and protect the Factor. The Freight Factor wants to protect your business so they can keep processing your loads. The more loads you run, the more you get paid, and the more the Factor makes. They want to help you stay in business and grow your business so you can buy more trucks so they can process more loads for payment. It's a cycle. Don't view them as leaches. If you do, you need to change your mindset. They are providing a necessary service and helping Carriers grow and become more profitable, end of story.  

At the end of the day, you need to protect your business and you need to be checking Brokers' Credit scores anyway to protect yourself in the long run. I want to know who I'm working with before I accept a load and you should too. So, Recourse or Non-Recourse... it doesn't matter because you SHOULD be checking out your Brokers regardless before accepting loads. So since you are checking anyways, get a Recourse Contract because it will be cheaper.