A majority of trucking companies will utilize freight factoring services at some point during the life of their business, but not every business owner will fully understand how freight factoring services work. This will lead not only to confusion for the owner but also frustration when things don’t go your way.
One of the things you’ll have to watch out for are chargebacks, which occur in recourse transactions with the factor. In order to fully understand chargebacks with freight factoring services, you’ll have to know the difference between recourse and non-recourse transactions.
Don’t worry; we’ll break it all down for you right here!
Recourse vs. Non-Recourse Transactions
When dealing with a factor, you’ll essentially have two options to consider when setting up your invoices with them — a recourse transaction or a non-recourse transaction. The difference is extremely important and will completely change how the factoring process works.
In a non-recourse transaction, the factor will assume all responsibility for the invoice given to them. There will typically be certain situations where this won’t be honored in a non-recourse transaction; however, those situations will be clearly laid out when you sign an agreement.
For example, some factors might limit non-recourse transactions to your clients with a good credit rating, while others might only honor a non-recourse transaction if your client files bankruptcy.
In a recourse transaction, the trucking company still maintains responsibility for invoices — even if the factor is unable to get a hold of the client or receive payment in time.
What Is a Chargeback?
A chargeback is what happens when the factor is unable to collect payment from your client in a reasonable amount of time. The factor will request the advance back and will hand the invoice back over to you.
At that point, you’ll have to reach out to the client yourself and request payment for the invoice — just like you would without a factor.
It’s important to note that chargebacks can occur for a variety of reasons. Defective products being delivered, errors on your company’s part, client disputes, and invoices that are just too old are some of the most common reasons a chargeback will occur in a recourse transaction. Again, these should be discussed when setting up your account with the factor.
How Can Factors Help You Avoid Chargebacks?
The difference between quality freight factoring services and the rest will often lie in transparency. You should always expect your factor to provide an excellent team of collectors that will work well alongside your clients. The difference will be seen in the communication with you, as some may not always do their part in keeping you in the loop.
A quality factor will keep you updated throughout the process of each invoice they’re collecting payment on. They’ll communicate with you when something seems wrong and will work with you to avoid chargebacks.
If you’re looking for freight factoring services that are dedicated to your trucking company, Top 5 Factoring has taken the time to rate the most prominent factors in your industry. To view the companies we’ve designated as the top-of-their-class, contact us today!
Moseley, Greg. “Chargebacks in The Factoring Process.” OTR Capital, OTR Capital, 17 Jan. 2020, otrcapital.com/chargebacks-in-the-factoring-process/.