Is nonrecourse factoring actually nonrecourse?

Read the fine print in your factoring agreement. Most likely if you "refused to return" the money they "advanced" on YOUR invoice, they would sue you and win and take everything you have in your company to settle the debt. I think the key to understand factoring is that no matter what, the invoice is yours from your customer until paid. The factor is basically loaning you the money. I don't know that there is any such thing as true non-recourse factoring. I sold my truck and trailer but factored with APEX for a couple years. As Red Foreman stated, if you know the rules when you start factoring it can be a valuable cash flow tool. I too had a few problems when I started but only because I was ignorant of the process. After that, APEX was a great company to work with. They did exactly what they said they would do.

 

I am in contact with someone there about every month or two. Most often to give them a heads up about any irregular invoice issues (rates updated after the fact, unusual terms or line items, and so on) or status on my follow-ups with a customer that has an invoice going over 45 days. Once in a while they mess up a funding request. Most times I have them deposit to the fuel card. Once in a while I'll need to beat an insurance payment or payroll, so either wire to my bank or split one and they miss it. They have been very good about correcting those promptly and have on one occasion reimbursed some bank fees that resulted from a mishap on their end.

Communication is key, just as it is with the truck order that created the invoice in the first place. If anything is even the slightest bit not 100% routine, I am at least sending an e-mail about it to my account manager if not calling.

 

While I haven't had a broker do a non-payment, I use TBS Factoring Services for my factoring. Their cost to me for non-recourse is 5%. From what I understand on the contract is if the broker or shipper doesn't pay the invoice, then TBS eats the bill. TBS won't come after you for the money, but they will not factor that particular customer again either. TBS is very honest and have been in business for 30 years. If you have any questions, give them a call. If you need a factoring company, I highly recommend them.

 

In my case, knowing roles and responsibilities. Throughout the shopping/sales pitches and onward once I was signed up, I was led to believe that the factoring company would own more responsibility with collections. The reality is their collections include little more than count days and deposit the checks. They do more, but mainly with regard to record keeping and accounting. it's how it has to work. The carrier is the only one with first hand knowledge about what happened with a given load. To expect your banker (what a factoring company basically is) to be able to discuss the many possible reasons for a delayed or short payment is unreasonable and only wastes time.

From reading other posts, here are some other things I see:

1. The money you get from the factoring company is a loan, not an invoice payment. Don't get the idea you can print an invoice, factor it, then forget it.

2. The factoring advance is a loan to you, not the customer. At the end of the day, you (the carrier) are on the hook for that money until the invoice is paid to the factoring company in full.

3. Factoring is not a magic wand that removes risk from deadbeat customers. See #2. The only thing non-recourse protects you from is unexpected bankruptcy of the payor. They will have had to pass a credit check before an invoice was funded in the first place. If they go out of business in that 30-60 day window you'd normally get paid in, then it covers you for the amount advanced.

Thing is, that is rare. A more likely scenario with a deadbeat customer is false claims, "missing" paperwork, mysterious shipper or consignee "fees," and the like. Basically any bogus reason to delay or avoid paying. Factoring companies do keep up with who does that, and will refuse to fund them. Even if they have good credit scores with D&B and the like.

4. Factoring is not a dump for bad customers. Many will enter a factoring agreement thinking they can throw their worst customers at them and get paid anyway. The truth is: even if your bad customer passes a credit check and invoices are funded, the factoring assignment just gives them another middleman to jam things up with.

5. Get intimately knowledgeable on what your factoring company's internal process is, normal timelines, and who is responsible at each step. Track each invoice closely and reach out to someone the moment you think something isn't right. Invoicing and collection problems get astronomically worse with time passing if you ignore things and expect someone else to be catching problems.

 

See Red Foreman's response. I had almost the same experience. Sent paperwork expecting funding one day and got it after the weekend, same day funding is more costly. My factor charged extra to split the funds between fuel account and bank account. Once I figured out the system it was fine. Their fuel discounts were stellar, their website was great, easy to do credit checks, etc.