What Non-Recourse Factoring Does Not Cover

Credit risk versus a dispute

Factoring sells the invoice. The question non-recourse answers is who loses if the account debtor never pays. Credit risk means the broker cannot pay because the broker has failed: bankruptcy, a receiver, an empty account. A dispute means the broker can pay, or at least has not failed, and is refusing because something about the load is wrong or is alleged to be wrong. The factor is in the business of judging broker credit. The factor is not in the business of losing every argument you have with that broker about a seal, a pallet, or a signature.

Hold those two boxes apart before you read your contract. Box one: the broker is insolvent and the paperwork would have been paid. Box two: the broker is operating and is deducting. Non-recourse, as the word is used in trucking factoring, is aimed at box one. Box two is why the chargeback arrived on a contract that still says non-recourse on the cover. You did not misread the cover. The cover was never the coverage.

This page will not re-teach recourse factoring. Under recourse, box one comes back to you as well. The comparison page puts the two products side by side. Stay here for the carve-outs.

Broker bankruptcy is the usual "yes"

If the definition says the factor assumes the risk of the broker's insolvency, bankruptcy, or failure to pay an undisputed invoice, that is the protection you paid for, if you paid extra for it. When a broker closes and the invoices were clean, you send the factor the notice, the filing, or the bounced payment, and you do not expect a chargeback for the credit loss. Read the definition for the exact trigger. Some contracts require a bankruptcy filing. Some accept a written admission that the broker cannot pay. Some require you to have filed a bond claim first. Those triggers are different. "They stopped answering the phone" may not be the trigger in your contract.

Watch the exception inside the exception. A definition often says the factor keeps the credit loss except to the extent the invoice was subject to a dispute, offset, or defense. If you were already arguing about temperature when the broker filed bankruptcy, the factor may charge back the disputed portion and keep only the undisputed insolvency loss. Write down the dates. A dispute that starts after the insolvency, invented to avoid the coverage, is a different argument from a dispute that was already in the email.

Shortage, temperature, and a bad POD are the usual "no"

A shortage, a damage claim, a temperature rejection, a seal problem, an unsigned POD, a missing lumper receipt, and an offset for an old claim are the usual carve-outs. The broker is using the freight bill as the place to take the money. The factor advanced you that freight bill. When the money does not arrive in full, the factor reverses the advance. The label does not stop the reversal. The definition almost always says a dispute is recourse even on a non-recourse contract.

That is not the factor "keeping the load." It is the factor refusing to eat a fight about the cargo. You still have the POD, the bill, and the relationship with the broker. You contest the deduction. The claims page is how a cargo deduction is answered. The chargeback page is how the settlement looks when the check is short. Neither of those fights is won by pointing at the word non-recourse.

An unsigned POD is the painful version because it was avoidable. The broker's refusal is a document refusal. Non-recourse was never insurance for a bill the broker's rules say they will not pay. Get the signature or the exception on the paper before the factor purchases the invoice, or expect the invoice to come back.

The definition section is the whole product

Find the section titled definitions, or the section that defines approved credit, recourse event, or dispute. Highlight "dispute," "offset," "defense," "documentation," and "insolvency." If dispute includes any claim the broker asserts, then any assertion is a chargeback, even a weak one, until you beat it. If dispute is limited to a written cargo claim with documents, a vague short-pay may not fit, and you can say so. The website's banner is not in that section. The salesperson's comparison chart is not in that section unless it was attached as an exhibit.

Ask the factor to initial the definition you are relying on. If they will not, you are buying the longer document. Bring the contract to the conversation. Do not bring the landing page.

Chargeback timing

The chargeback usually posts when the factor gives up on collecting the disputed amount, or when the broker's payment arrives short, whichever the contract uses. It does not wait for you to finish the cargo claim. Your reserve drops, or the next wire drops, while you are still emailing the broker. That timing feels like a verdict. It is a cash movement. You can still recover from the broker later. If you recover, the contract should say the recovery comes back to you, minus any collection cost the contract allows. Read that sentence so a later recovery does not sit in the factor's account.

Do not ignore a chargeback because you believe non-recourse makes it wrong. Answer it with the definition. If the event is insolvency of an undisputed invoice, say that and attach the proof. If the event is a POD, fix the POD. Silence lets the accounting stand.

Questions that expose a fake non-recourse label

Ask the factor three questions in writing. If the broker files bankruptcy and the POD was clean, do you charge the invoice back? If the broker short-pays for a claimed shortage, do you charge the invoice back? If the broker offsets an old claim against this load, do you charge the invoice back? A real non-recourse contract answers no, yes, and yes, or it answers with the definition's actual words. A fake label answers "you're fully protected" to all three. Fully protected is not a definition.

Then ask who files a bond claim. The bond claim is how a motor carrier pursues a broker's financial responsibility filing when the broker does not pay. Factoring does not file that claim for you unless the contract assigns the factor that job. If the loss has been charged back to you, the bond claim may be yours to file before a deadline. If the factor kept the credit loss, the factor may be the one who should file, and you should not assume they did. Ask.

The other page compares products. This page is the fine print that survives the comparison.

Keep the broker's written reason for the short-pay next to the chargeback notice. If the reason is "account closed" or a bankruptcy case number, you are in the credit-risk conversation. If the reason is a claim number, a missing document, or an offset, you are in the dispute conversation. Do not send the factor a cargo narrative for an insolvency, and do not send a bankruptcy speech for a refused POD.

A partial short-pay can be both. The broker pays most of the invoice and disputes a slice. The factor can keep the credit risk on nothing, because the broker paid, and charge back only the disputed slice. Split the invoice in your notes the same way. One label for the whole load will misstate the coverage.

Frequently Asked Questions