Recourse vs non-recourse factoring: who pays when a broker doesn't
Every factoring agreement answers one question before you haul the load: if the customer never pays, whose loss is it? The label on the program starts the answer. The contract finishes it.
Written by Gabriel Gonzalez
Federal backstops under either model
Recourse vs non-recourse factoring comes down to who absorbs an invoice your customer never pays. With recourse factoring, the factor charges it back to you. With non-recourse factoring, the factor absorbs the loss, but only for the events your agreement lists, so a disputed load can still come back to you.
Most carriers compare factoring offers on the fee. The recourse terms deserve as much attention, because they decide what happens to your cash on the day a broker stops paying.
I have spent more than 22 years at Simplex, including nearly 16 as COO, and I look at this choice the way I look at any risk on a balance sheet: you can carry it yourself, or pay someone else to carry it. This guide shows what you are buying either way.
The full briefing, read aloud
7 chapters. Select one to jump to it.
Generated with AI text-to-speech from this article's key insights, in order, rather than reading it word for word. Chapter times come from a transcript of the audio. The article itself was written and reviewed by Gabriel Gonzalez.
Key takeaways
Recourse keeps the credit risk with you
If a customer hasn't paid by the end of the period your agreement sets, the factor charges the invoice back to you.
Non-recourse moves only the risks the contract lists
The definition of a covered event is the product you are buying. A customer that can't pay and one that won't pay are different problems.
Disputes travel with the invoice
Under UCC 9-404, a broker can raise a claim arising from the load against the factor to reduce what it owes.
A charge-back is a cash event
It can come out of your reserve or your next advance, so plan a cushion before you choose recourse.
The broker bond is a backstop, not a guarantee
Every broker must keep a $75,000 bond or trust fund for unpaid carriers, with a 60-day claim window if it fails.
In this articleContents
Recourse vs non-recourse factoring: what is the difference?
The difference is who absorbs an invoice your customer never pays. In both models you sell the invoice and the factor collects it. The recourse terms decide where the loss lands when collection fails.
| What happens | Recourse | Non-recourse |
|---|---|---|
| A customer can't pay, for example it went out of business | You absorb it through a charge-back | The factor absorbs it, if the event is covered |
| A customer won't pay in full, over a cargo claim, shortage, or missing paperwork | You absorb it | The agreement's dispute terms decide |
| Checking customer credit before you haul | Your job, since the loss is yours | The factor's interest too, since the covered loss is its own |
| What the price buys | Cash now | Cash now, plus a transfer of covered credit risk |
Non-recourse is a contract term, not a defined legal standard. Article 9 of the Uniform Commercial Code governs sales of accounts such as freight invoices (UCC 9-109). It refers to recourse but defines neither model, and FMCSA's rules don't use the term. Two programs with the same label can protect you very differently.
If you are new to factoring itself, start with our guide to owner-operator factoring, which covers advances, reserves, the notice of assignment, and UCC-1 filings.
How does recourse factoring work?
Recourse factoring works like any other factoring until an invoice goes unpaid. Once it ages past the recourse period in your agreement, the factor can charge it back to you.
What happens at the end of the recourse period?
The agreement sets both the period and the method. Ask which of these it uses, and in what order:
- A deduction from your reserve, the part of each invoice the factor holds until the customer pays
- An offset against your next advances, which shrinks the cash from the loads you haul this week
- A buyback, where you repay the advance in cash
- A replacement invoice, where you substitute a good invoice for the unpaid one
Whichever method applies, the unpaid invoice and the work of collecting it come back to you.
What the UCC expects of a factor with recourse
When a factor collects from your customers and can charge uncollected invoices back to you, the uniform text of UCC 9-607(c) requires it to collect in a commercially reasonable manner. Under 9-607(d), it may deduct reasonable collection expenses, including attorney's fees, from what it collects. Read how your agreement passes those costs through to you.
What does non-recourse factoring cover?
Non-recourse factoring covers the nonpayment events your agreement defines. When a covered event happens, the factor takes the loss. The definition of a covered event is the product you are buying.
A customer that can't pay vs one that won't
A broker that goes out of business can't pay. A broker that disputes a load over damage, a shortage, or a missing delivery receipt won't pay in full, and that is a different risk.
Under the uniform text of UCC 9-404, the factor's rights to your invoice are subject to the terms of your contract with the broker and to any defense or claim arising from that load. The broker can use such a claim to reduce what it owes. So a cargo claim shrinks the invoice whoever owns it, and your agreement decides whether the shortfall comes back to you.
Good paperwork is your best defense in a dispute. Our guide to documenting damaged cargo covers what to record at the dock. In a short-pay dispute, you also have the right to review the broker's record of the transaction, including the freight charges it collected (49 CFR 371.3).
Questions to ask about covered events
- What counts as "can't pay"? A bankruptcy filing, a closed business, or a set number of days past due?
- Which customers are covered? Only customers the factor approved before you hauled, and up to what credit limit?
- How are disputes handled? Who absorbs a short pay, a cargo claim, or a rejected invoice?
- What if a broker pays you? After it receives the notice of assignment, paying you no longer settles the invoice under UCC 9-406, so forward the payment as your agreement requires.
Recourse or non-recourse: which fits your operation?
Choose by asking what one unpaid invoice would do to your cash. If you could absorb it, recourse lets you keep the risk and the savings. If you couldn't, non-recourse is how you pay to move that risk.
- Your cash cushion. A charge-back lands on top of fuel, insurance, and truck payments. Under recourse, hold enough cash to cover your largest open invoice.
- Your customer mix. Hauling mostly for one or two customers concentrates the risk, because one failure is a large share of your receivables.
- Who checks credit. Under recourse, vetting each broker is your job. Under non-recourse, the factor has its own money on the line.
- The price gap, in dollars. Run both quotes on your average load. The difference is what you pay to move covered credit risk to the factor.
Checking a broker before you haul protects you under either model. Our guide to freight fraud and how to avoid it covers the warning signs.
The federal backstop under both models
Every property broker must keep a $75,000 surety bond or trust fund that pays motor carriers and shippers when the broker fails to carry out its contracts (49 CFR 387.307). Since January 16, 2026, a payment that drops it below $75,000 leads to an FMCSA notice that the broker's authority will be suspended within 7 business days, unless the amount is restored or the claims are satisfied.
When FMCSA posts a broker's financial failure, the surety accepts claims for 60 calendar days. Who owns the receivable at that point depends on your agreement, so settle with your factor early who files the claim.
What to check in the agreement before you sign
Work through these steps with the agreement in front of you, not the brochure.
Step 1: Find the recourse terms
Under non-recourse, that means the definition of a covered event. Under recourse, it means the recourse period and how charge-backs are taken.
Step 2: List your customers and how they pay
Ask which ones the factor will approve and at what limits. A customer it won't approve may fall outside the protection you are paying for.
Step 3: Price both models on the same loads
Include fees, funding charges, and any collection costs passed through. Our trucking factoring page explains how our partner's non-recourse program handles advances, reserves, and funding.
Step 4: Check how disputes and claims are handled
A cargo claim can reduce what a broker pays under either model. Check that your motor truck cargo insurance limit meets what your broker contracts require.
Step 5: Read the exit terms
Know the notice period, any termination fee, and how open charge-backs are settled when you leave.
How Simplex helps you factor with less risk
The recourse terms protect your cash only if your authority, coverage, and paperwork hold up too. We help with each.
Non-recourse factoring through a partner
Simplex offers non-recourse freight factoring through our partner, OTR Solutions, with load paperwork uploaded in the OTR Solutions app and funding by wire, ACH, or fuel card.
Cargo coverage for the loads you invoice
Our motor truck cargo insurance team helps match your cargo limit to what your broker and shipper contracts require.
Authority to bill your own customers
Our authority packages cover your USDOT number, MC authority, BOC-3, authority letter, and UCR, so you can haul and invoice under your own name.
Frequently asked questions
What is non-recourse factoring?+
Is recourse factoring cheaper than non-recourse?+
Does non-recourse factoring cover short pays and cargo claims?+
What happens when the recourse period ends?+
Is non-recourse factoring available?+
Where this information comes from
The rules below come from federal regulation and the uniform text of UCC Article 9 published by Cornell's Legal Information Institute, checked on October 16, 2026. Each state enacts Article 9 with its own changes, and your factoring agreement sets the recourse terms.
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1
eCFR — 49 CFR 387.307
The $75,000 broker bond or trust fund, the suspension process, and the 60-day claims window.
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2
eCFR — 49 CFR 371.3
The transaction record brokers keep for three years, and each party's right to review it.
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3
Cornell LII — UCC 9-404
A broker's defenses and claims from the load can be asserted against the factor to reduce what it owes.
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4
Cornell LII — UCC 9-607
Commercially reasonable collection when a factor can charge invoices back, and deductible collection expenses.
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5
Cornell LII — UCC 9-406
After a notice of assignment, only payment to the factor settles the invoice.
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6
Cornell LII — UCC 9-109
Article 9 covers sales of accounts, which is what factoring is.
Written by
Gabriel Gonzalez
Chief Revenue Officer, Simplex Group
Chief Revenue Officer at Simplex Group, with more than 22 years at the company, including nearly 16 years as Chief Operating Officer. His background combines revenue strategy with deep operational experience, giving him a strong perspective on how compliance, risk, permits, cash flow, and operational readiness affect a carrier's ability to grow profitably.
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Know who carries the risk before you haul the load
Recourse and non-recourse are both reasonable choices. The mistake is signing without knowing which losses land on you, and how much cash that takes.
If you want to talk through non-recourse factoring for your loads and customers, talk to our team.