When a Broker Doesn't Pay Your Factoring Company

What happens first

Your factor stops receiving payment on invoices assigned to that broker. Depending on your agreement, one of two things follows.

• Under recourse: after a chargeback period, the unpaid invoices come back to you. You repay the advance.
• Under non-recourse: the factor absorbs the loss if the event meets the covered-event definition. A formal insolvency usually does. A broker quietly winding down may not.

The surety bond

US freight brokers must carry a BMC-84 surety bond. When a broker fails, carriers and factors claim against it. Bonds are frequently oversubscribed — total claims exceed the bond — so claimants recover a fraction. File early; late claims recover less or nothing.

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Reducing the exposure before it happens

1. Check broker credit before accepting every load. Your factor should make this instant. If it takes a day, that is a real weakness.
2. Watch concentration. If one broker is a large share of your revenue, that is your single point of failure.
3. Watch payment drift. A broker moving from 30 to 45 to 60 days is the earliest warning you will get.
4. Keep paperwork clean. Under non-recourse, a missing signature can be the difference between a covered claim and a declined one.
5. Know your chargeback window so a recourse chargeback is not a surprise.

The question to ask your factor

"If a broker I haul for files Chapter 11 next month with $18,000 of my invoices outstanding, walk me through exactly what happens and when." A good factor answers precisely. A vague answer is itself the answer.