Glossary · Factoring
Non-recourse factoring
Also called: Non-recourse
Definition
Non-recourse factoring is factoring in which the factor absorbs the loss if an approved debtor fails to pay because of insolvency, within credit limits and terms the contract defines.
Non-recourse sounds like the factor takes all the risk. In practice it covers a narrow event: an approved debtor that can't pay because it is insolvent or out of business, on invoices within that debtor's credit limit, with complete paperwork. Everything else usually stays with the carrier, including:
- Disputes over service, damage, shortages or late delivery.
- Short pays for lumper fees, detention or fines the broker didn't approve.
- Invoices on debtors the factor didn't approve, or above the credit limit.
- Payments the debtor sent to the carrier or to another party.
- Fraud by the client, including fake loads, double brokering and double factoring.
Carriers pay more for non-recourse, and factors underwrite debtors harder to offer it. The contract's definition of a covered credit event decides everything, so quote it plainly. The first chargeback on a non-recourse account is where misunderstandings surface.
Read what non-recourse factoring doesn't cover for worked examples. General information, not legal advice: contract terms vary, so have counsel review yours.