What Is Freight Factoring: A Guide for Trucking Companies

Freight factoring lets you get paid for your freight invoices fast. Instead of waiting 30 to 60 days for brokers and shippers to pay, you sell your invoices to a factoring company. They pay you within 24 to 48 hours, usually 80% to 97% of the invoice value. Some brokers also offer quick pay programs as an alternative, which provide faster payment for a fee. This guide explains everything you need to know about freight factoring and how it works.

What Is Freight Factoring?

Freight factoring is a financing method where you sell your unpaid freight invoices to a factoring company. The factoring company pays you most of the invoice amount upfront, usually within one to two business days. They then collect payment directly from your customer (the broker or shipper). Once your customer pays, the factoring company sends you the remaining balance, minus their fee.

Think of it like this: You complete a load and send an invoice for $3,000. Instead of waiting 30 days for payment, you sell that invoice to a factoring company. They pay you $2,850 (95% advance rate) the next day. When your customer pays the factoring company 30 days later, you get the remaining $150, minus the factoring fee.

This is different from a loan. With factoring, you're selling an asset (your invoice), not borrowing money. That means no debt on your balance sheet. It's also different from invoice financing, where you use invoices as collateral for a loan.

How Does Freight Factoring Work?

The freight factoring process follows these steps:

1. You complete a load: You deliver freight and create an invoice for your customer (broker or shipper).
2. You submit the invoice: Send the invoice and supporting documents (rate confirmation, proof of delivery) to your factoring company, usually through an online portal or mobile app.
3. Factoring company verifies: They check that the invoice is valid and the customer is creditworthy. This usually takes a few hours.
4. You get paid: The factoring company deposits funds into your account, typically 80% to 97% of the invoice value. This happens within 24 to 48 hours.
5. Customer pays the factoring company: Your customer pays the factoring company directly, usually within 30 to 60 days.
6. You receive the remainder: Once payment is received, the factoring company sends you the remaining balance, minus their factoring fee.

Most factoring companies offer online portals and mobile apps. You can submit invoices, track payments, and see your account balance anytime. Some companies even offer same-day funding for invoices submitted before a certain time.

Why Do Trucking Companies Use Freight Factoring?

Trucking companies use freight factoring for several key reasons:

Improve Cash Flow

The biggest reason is cash flow. Trucking is expensive. You need money for fuel, repairs, insurance, and driver pay. But customers often take 30 to 60 days to pay invoices. Factoring bridges that gap. You get paid fast, so you can keep operating while waiting for customer payments.

Without factoring, you might have to turn down loads because you don't have cash for fuel. Or you might fall behind on truck payments. Factoring solves these problems by giving you immediate access to your invoice money.

Grow Your Business

With steady cash flow, you can take on more loads. You can hire more drivers. You can add trucks to your fleet. Factoring lets you grow without waiting months for invoices to be paid.

Many owner-operators use factoring to scale from one truck to a small fleet. The consistent cash flow makes it possible to cover expenses while expanding operations.

No Credit Check Required

Traditional loans require good credit. Factoring companies care more about your customers' credit. If your customers (brokers and shippers) pay their bills, you can qualify for factoring even with poor personal credit.

This makes factoring accessible to new owner-operators and small trucking companies that might not qualify for bank loans.

Outsource Collections

When you factor invoices, the factoring company handles collections. They follow up with customers who pay late. They handle disputes. This saves you time and stress. You can focus on running your business instead of chasing payments.

Types of Freight Factoring

There are two main types of freight factoring:

Recourse Factoring

With recourse factoring, you're responsible if your customer doesn't pay. If the factoring company can't collect payment, you must buy back the invoice or replace it with another invoice. This type usually has lower fees because the factoring company takes less risk.

Recourse factoring works best if you have reliable customers with good payment history. Most factoring companies offer this option.

Non-Recourse Factoring

With non-recourse factoring, the factoring company assumes the risk of non-payment. If your customer doesn't pay, you're not responsible. The factoring company absorbs the loss. This type usually has higher fees because the factoring company takes more risk.

Non-recourse factoring is harder to find and more expensive. Most companies only offer it for customers with excellent credit. Some companies offer "true" non-recourse, while others only cover customer bankruptcy, not disputes or other payment issues.

Spot Factoring vs. Contract Factoring

You can also choose between spot factoring and contract factoring:

• Spot factoring: You factor individual invoices as needed. No long-term contract. You pay higher fees but have more flexibility.
• Contract factoring: You commit to factoring a minimum volume or all invoices from certain customers. Lower fees but less flexibility. Contracts typically last 6 to 12 months.

New companies often start with spot factoring to test the service. As they grow, they may switch to contract factoring for better rates.

How Much Does Freight Factoring Cost?

Freight factoring fees vary by company and your situation. Here's what to expect:

• Factoring fee: Usually 1% to 5% of the invoice value. This is the main cost. Lower fees (1% to 2%) are common for high-volume customers with good credit. Higher fees (3% to 5%) apply to smaller volumes or riskier customers.
• Advance rate: Most companies advance 80% to 97% of the invoice value upfront. Higher advance rates mean you get more money immediately, but fees might be slightly higher.
• Additional fees: Some companies charge setup fees, monthly minimums, or per-invoice fees. Read the contract carefully to understand all costs.

Example: You factor a $5,000 invoice with a 3% fee and 95% advance rate. You receive $4,750 immediately (95% of $5,000). When the customer pays, you get the remaining $250, minus the $150 fee (3% of $5,000). Your total received: $4,850. The factoring company keeps $150.

Compare multiple factoring companies. Ask about all fees, not just the factoring percentage. Some companies offer lower rates but charge more in hidden fees.

How to Choose a Freight Factoring Company

Not all factoring companies are the same. Here's what to look for:

Reputation and Experience

Choose a company that specializes in freight factoring, not general invoice factoring. Freight factoring has unique requirements, like handling rate confirmations and proof of delivery. Companies that understand trucking will process your invoices faster and handle disputes better.

Check online reviews and ask other trucking companies for recommendations. Look for companies with at least a few years of experience in freight factoring.

Funding Speed

How fast do they fund? Most companies fund within 24 to 48 hours. Some offer same-day funding for invoices submitted before a deadline. Faster funding means better cash flow for your business.

Advance Rate

Higher advance rates mean more money upfront. Look for companies offering 90% to 97% advance rates. Lower advance rates (80% to 85%) mean you wait longer for the full payment.

Fee Structure

Compare total costs, not just the factoring percentage. Ask about:

• Factoring fee percentage
• Setup or enrollment fees
• Monthly minimums
• Per-invoice fees
• Early termination fees

Calculate the total cost for your expected volume. A company with a lower percentage might cost more if they charge high monthly minimums.

Technology and Ease of Use

Look for companies with online portals and mobile apps. You should be able to submit invoices, track payments, and view your account easily. Good technology saves time and reduces errors.

Customer Service

You'll work with your factoring company regularly. Make sure they have good customer service. Can you reach them when you need help? Do they respond quickly? Do they understand trucking?

Test their customer service before signing. Call with questions. See how they respond. Good service makes the factoring process smooth.

Common Questions About Freight Factoring

Do I Need Good Credit to Qualify?

Not necessarily. Factoring companies care more about your customers' credit than yours. If your customers (brokers and shippers) have good payment history, you can qualify even with poor personal credit. This makes factoring accessible to new owner-operators.

Can I Factor Some Invoices But Not Others?

Yes, with spot factoring. You choose which invoices to factor. You can factor invoices from slow-paying customers while handling fast-paying customers yourself. Contract factoring usually requires you to factor all invoices from certain customers.

What If My Customer Doesn't Pay?

It depends on your agreement. With recourse factoring, you're responsible for non-payment. You must buy back the invoice or replace it. With non-recourse factoring, the factoring company absorbs the loss. Most companies offer recourse factoring, which has lower fees.

How Long Does It Take to Get Started?

Most factoring companies can approve your application within 1 to 3 business days. Once approved, you can start submitting invoices immediately. The first funding might take a day or two longer as they verify your setup.

Can I Use Factoring With Any Broker or Shipper?

Factoring companies check the credit of your customers before accepting invoices. They may decline invoices from customers with poor credit or payment history. Most companies work with major brokers and shippers, but they may not accept invoices from unknown or high-risk customers.

Conclusion

Freight factoring gives you immediate cash for your freight invoices. Instead of waiting 30 to 60 days for payment, you get paid within 24 to 48 hours. This improves cash flow, helps you grow, and lets you focus on running your business instead of chasing payments.

If you're struggling with cash flow or want to grow faster, consider freight factoring. It's a tool that helps you get paid for your work without waiting months for invoices to be paid. Combine it with smart rate calculations and negotiation strategies, and you'll have a strong foundation for financial success in trucking.