There is a difference, and it is significant. It’s important to us that you understand the difference, so here’s an explanation of the most important points.
Non-recourse factoring allows a Client to sell its invoices to a factor without the obligation of absorbing any unpaid invoices. Instead of using trucking as an example, if a Broker or Shipper renege on their payments or pay their invoices late, any losses are absorbed by the Factor, leaving the Client’s business untouched. However, credit checks are diligently performed on potential Non-recourse clients.
In Recourse factoring, the Client will be charged back the bought invoices if they go unpaid or uncollected. Since the carrier is agreeing to absorb some of the risk involved in the transactions involving its own customers, this factoring plan is generally less costly than Non-recourse factoring.
Recourse factoring has a few more differences in that it requires a certain minimum monthly balance, and also the factor will maintain a Reserve (typically, 5% to 20%) as security. In exchange, Recourse factoring will be slightly less expensive than Non-recourse factoring because there is a more even sharing of the risk. As a rule, potential Clients need to be more established.