Full explanation
Freight factoring is a financial arrangement where a motor carrier sells its accounts receivable (invoices for completed loads) to a factoring company at a discount, receiving immediate cash instead of waiting 30-90 days for broker/shipper payment. The factoring company advances 90-97% of the invoice value immediately, then collects the full amount from the broker/shipper and remits the remainder (minus their fee) to the carrier. Typical factoring fees range from 1.5-5% of the invoice value. The service is widespread among small and mid-size carriers that lack the cash reserves to cover fuel, maintenance, and driver pay while waiting for standard payment terms. Approximately 60% of owner-operators and small fleet carriers use factoring at some point. Factoring companies perform their own vetting of brokers (checking credit and payment history) which provides an additional safety layer for carriers — if a factoring company refuses to purchase a specific invoice, it may indicate the broker is a credit risk. Truck Graph does not directly track factoring relationships, but carriers with very new authority often rely heavily on factoring due to limited credit history.
Source: SBA: Invoice Factoring
Frequently asked questions
How much does freight factoring cost?
Typical factoring rates are 1.5-5% of invoice value. A $2,000 load factored at 3% costs $60 in fees. Rates depend on invoice volume, customer credit quality, and contract terms (recourse vs. non-recourse).
What's the difference between recourse and non-recourse factoring?
With recourse factoring (cheaper rates), the carrier must repay the advance if the broker/shipper doesn't pay. Non-recourse factoring (higher rates) means the factoring company absorbs the loss of non-payment, protecting the carrier from bad debt.
Do factoring companies vet brokers?
Yes. Reputable factoring companies maintain credit databases on thousands of brokers and shippers. If a factoring company declines to purchase an invoice from a specific broker, it's often a warning sign about that broker's payment reliability.