Waiting 30, 60, or even 90 days to get paid for completed hauls can be a major headache for truckers and small fleet owners. Cash flow is essential in the trucking business, and delayed payments can make it tough to cover fuel, maintenance, and payroll. That is where non-recourse truck factoring comes in—a financing solution that not only gets you paid faster but also protects you from unpaid invoices due to customer insolvency.
But how does it work, and is it the right choice for your business? In this guide, we will break down everything you need to know about non-recourse truck factoring, including how it works, its benefits, potential drawbacks, and how to choose the best factoring company for your needs.
What Is Truck Factoring?
Before diving into non-recourse factoring, let’s cover the basics.
Truck factoring (or freight factoring) is a financial service that allows trucking companies to sell their unpaid invoices to a factoring company in exchange for immediate cash. Instead of waiting for brokers or shippers to pay you, a factoring company advances most of the invoice amount (typically 80-95%) right away. When your customer finally pays, the factor releases the remaining balance, minus a small fee for their service.
It is a great way to maintain steady cash flow and cover expenses like fuel, maintenance, and payroll without waiting weeks or months to get paid.
Non-Recourse vs. Recourse Factoring: What’s the Difference?
There are two main types of truck factoring: recourse and non-recourse factoring.
- Recourse factoring means that if your customer fails to pay (due to bankruptcy, fraud, or other reasons), you are responsible for repurchasing the unpaid invoice or replacing it with another one.
- Non-recourse factoring, on the other hand, shifts the risk to the factoring company. If your customer does not pay due to insolvency or bankruptcy, the factor absorbs the loss instead of coming after you for the money.
Essentially, non-recourse factoring offers more protection, but it often comes at a higher cost compared to recourse factoring.
How Non-Recourse Truck Factoring Works
Here is a step-by-step breakdown of how non-recourse factoring works in the trucking industry:
- Deliver the Load – You complete a job and generate an invoice for the broker or shipper.
- Submit the Invoice to a Factoring Company – Instead of waiting for payment, you send your invoice to a non-recourse factoring company.
- Receive an Advance – The factoring company verifies the invoice and pays you upfront, usually 80-95% of the total amount.
- Factor Collects Payment – The factoring company waits for the broker/shipper to pay the invoice, usually within 30 to 90 days.
- Final Settlement – Once the customer pays, the factor releases the remaining balance, subtracting their fees.
- No Risk for You (If Non-Recourse Applies) – If your customer goes bankrupt and cannot pay, the factoring company takes the loss, not you.
Sounds great, right? But before you sign up, let’s look at the pros and cons.
Pros of Non-Recourse Factoring
✅ You Are Protected from Customer Insolvency – If your customer goes out of business, the factoring company absorbs the risk.
✅ Improved Cash Flow – Get paid within hours or days instead of waiting months.
✅ Less Collection Hassle – The factoring company chases payments from brokers and shippers so you do not have to.
✅ Easier to Qualify Than a Bank Loan – Unlike traditional loans, factoring relies more on your customers’ creditworthiness than your own.
✅ Flexible & Scalable – The more you invoice, the more cash you can access. It grows with your business.
Cons of Non-Recourse Factoring
❌ Higher Fees – Non-recourse factoring costs more than recourse factoring because the factor is taking on additional risk.
❌ Not All Non-Payments Are Covered – Many non-recourse agreements only cover insolvency (bankruptcy), not disputes or late payments. If your customer simply refuses to pay, you may still be on the hook.
❌ Customer Credit Checks Required – Since the factoring company takes on risk, they may reject invoices from high-risk brokers or shippers.
❌ Contracts May Have Restrictions – Some factoring companies require long-term contracts or have minimum volume requirements.
How Much Does Non-Recourse Factoring Cost?
Factoring fees typically range from 1% to 5% per invoice, depending on:
- Your customer’s credit (stronger credit means lower fees).
- Your factoring volume (higher volume often equals lower rates).
- The time it takes the customer to pay (longer payment terms usually cost more).
- The risk level of the industry and transaction.
For example, if you factor a $10,000 invoice with a 3% fee, the factoring company keeps $300, and you receive $9,700 (minus any advance payments already issued).
How to Choose the Right Non-Recourse Factoring Company
Not all factoring companies are created equal! Here are some key things to consider:
🔹 Check What “Non-Recourse” Covers – Some companies only cover bankruptcies, while others offer broader protection.
🔹 Compare Rates & Fees – Look beyond the advertised rate—watch for hidden fees like processing, wire transfer, or minimum volume fees.
🔹 Read the Contract – Some companies lock you into long-term contracts with penalties for leaving early.
🔹 Look for Fast Payouts – Some factoring companies pay within hours, while others take days.
🔹 Check Customer Service & Reviews – You want a company that actually helps if an issue arises.
Is Non-Recourse Factoring Right for Your Trucking Business?
Non-recourse factoring is a great option if you:
✔ Want faster cash flow without waiting for slow-paying brokers.
✔ Work with reliable but credit-risky customers.
✔ Want protection from customer bankruptcies.
✔ Do not want to chase down payments yourself.
However, if your customers are established and reliable, and you want lower fees, recourse factoring might be a better fit.
Final Thoughts
Non-recourse truck factoring can be a game-changer for trucking companies looking for steady cash flow and financial protection. It allows you to get paid faster, avoid bad debt, and focus on growing your business.
That said, it is important to read the fine print, compare companies, and choose a factor that truly fits your needs. The right factoring partner can make all the difference in keeping your wheels rolling—literally and financially!