We know how difficult it can be to keep your trucking business running while waiting for customers to pay you. Your business needs cash flow for fuel, truck maintenance, insurance, and more, but getting timely payments from customers is often a real thorn in your side. For a trucking company of any size, cash flow problems can put a huge weight on your shoulders.

When customers don’t pay you on time – or at all —it can put your business in jeopardy. This is why invoice factoring is a common practice in our industry. When you factor an invoice, you essentially sell it to the factoring company at a discounted rate in exchange for immediate payment. Hopefully that’s where the story ends, but as you have probably experienced, that’s not always the case.

Sorting Out Factoring

When people talk about factoring, they could mean one of two types:  recourse or non-recourse. Most factoring companies focus on recourse factoring, where truckers are liable for invoices when customers don’t pay. If factored invoices get paid on time, you can breathe a sigh of relief. However, when an invoice doesn’t get paid within a certain number of days, the factoring company will charge you back for full payment…sometimes even months later.

The other type of factoring is non-recourse. This means that the factoring company who purchased the invoice from you assumes the risk if it goes unpaid due to customer bankruptcy, fraud, or delinquency. So if the customer takes a long time to pay – or doesn’t pay at all – those invoices won’t come back to bite you. The factoring company assumes all the risk.

What About Rates and Collections?

Non-recourse factoring gets you off the hook for collections. Rather than spending resources trying to collect payment for factored invoices, you simply let the factoring company take care of it. And while the rates for non-recourse factoring might be a little higher upfront, the reduced risk, combined with no need for collections could make non-recourse factoring well worth the cost.

Managing your cash flow in the trucking business is no easy task. But understanding the difference between recourse and non-recourse factoring can help you make the right decision for your needs, so you can get back on the road and focus on what you do best…managing your trucking business.