What does recourse and non-recourse mean and what is the difference?
Recourse and non-recourse are terms that deal with what happens when an invoice that has been factored doesn’t get paid within a specific timeframe known as the recourse period. If a client is on a recourse program and an invoice is not paid within the recourse period or there is no prospect for it to be paid within the recourse period, they would be required to pay that invoice back or replace it with one of similar value. Please note that while this is a fairly rare occurrence due to safeguards within the debtor approval process, it does still happen occasionally.
If a client was on a non-recourse plan and an invoice that had been factored didn’t get paid within the recourse period, the client would not be required to pay it back or replace it with a good invoice of similar value if it fell into the non-recourse criteria. Please note that non-recourse does not apply in every instance. Non-recourse does not apply in cases where the carrier has delivered late, damaged the load, or in an instance where the broker has a dispute with the carrier over the load.
Typically, due to the increased risk associated with non-recourse factoring that the factor is assuming, non-recourse factoring is more expensive for your business than recourse factoring. Anyone interested in non-recourse for their factoring service should take the time to explore the price difference to determine if it is a good fit for your business.