The process will be different depending on your freight factoring company. Most trucking factoring companies will credit check your clients to minimize working with debtors who don’t pay. This helps trucking companies choose between brokers and shippers they should work with and which ones to avoid. Trucking companies also need to decide if they want to sign up for recourse or non-recourse factoring agreements.
What’s the difference between non-recourse and recourse freight factoring?
There are two different types of trucking factoring: non-recourse and recourse. Both agreements pay you in 24 hours and are beneficial for trucking companies depending on their company size and freight volume. Both agreements also offer free credit checks on all clients to minimize the risk of working with a bad debtor. All benefits included in a non-recourse or recourse factoring program are included in the factoring fee.
What is non-recourse freight factoring?
Typically, with non-recourse factoring, the rate will be slightly higher than a recourse agreement. The factor is incurring all the risk if a customer doesn’t pay or goes out of business. The trucking company will never be responsible for paying back the truck factor under a non-recourse agreement. This is a major benefit for smaller trucking companies who would go out of business if they were charged back.
There is no reserve account with a non-recourse program. The trucking company will receive 100% of their freight bill minus the factoring fee when they get funded. The factor will also handle all the billing and invoicing and all collections from brokers and shippers—this value-added for smaller trucking companies that do not have enough employees to complete all the paperwork.
What is recourse freight factoring?
A recourse factoring agreement is slightly different than a non-recourse one. Firstly, the fee is lower as the trucking company is solely responsible if a broker or shipper does not pay. The trucking factoring company will not take the hit for a missed payment.
A portion of the total funding amount is held in a reserve account until the broker or shipper pays. The amount that is held in reserve is dependent on the trucking factoring company.
Typically, with a recourse factoring agreement, the trucking company is responsible for all invoicing and billing for the company. However, sometimes the trucking factoring company will offer a recourse with a billing program and handle invoicing and billing. The trucking company is responsible for making collections on the freight brokers and shippers that fail to pay.
Why does your trucking company need trucking factoring?