Freight factoring lets a carrier sell broker invoices to a factoring company for 1.5–5% in exchange for same-day or next-day payment, instead of waiting net-30. It is most useful in the first 2 years and for fleets where payroll outpaces receivables.
- Definition
- Freight Factoring — Freight factoring is a financing arrangement in which a motor carrier assigns its accounts receivable from brokers to a factoring company in exchange for immediate payment minus a small fee.
- Typical recourse fee
- 1.5–3% of invoice
- Typical non-recourse fee
- 3–5% of invoice
- Funding speed
- Same-day to 24 hours
- Reserve holdback
- 5–10%, common
- ACH funding fee
- $0–$25/transfer (Fed wire ~$25)
- Chargeback window (recourse)
- 60–120 days typical
- Early-termination penalty
- $500–$2,500 or a % of remaining term
How does freight factoring actually work?
You deliver a load. You email the BOL, signed POD, and rate confirmation to the factor. They verify the broker is credit-approved, advance you 95–97% of the invoice within 24 hours (many same-day), then collect from the broker on net-30 to net-45.
When the broker pays the factor, the reserve holdback (usually 5%) is released to you minus the factoring fee. So a $2,000 invoice at 3% factoring fee: you get $1,900 advance in day 1 + $40 released reserve on day 30 = $1,940 net. The factor keeps $60.
What's the difference between recourse and non-recourse factoring?
Recourse (cheaper, 1.5–3%): if the broker doesn't pay in 60–120 days, you owe the money back. You still carry the broker credit risk. Almost every low-cost factoring plan is recourse.
Non-recourse (3–5%): the factor absorbs broker bankruptcy risk — if the broker goes out of business, the factor eats the loss. Non-recourse has limits: it typically doesn't cover slow-pay disputes, invoicing errors, or your fault (missing paperwork). Read the specific bankruptcy-only wording before assuming you're covered.
What hidden fees kill your factoring math?
The headline rate is only part of the cost. Watch for: monthly minimums ($5K–$20K in factored volume required or you pay a floor fee), ACH funding fees ($5–$25/transfer, adds up), wire fees ($25 each), reserve holdback (5–10% not always fully released), chargeback fees ($25–$50 per broker that doesn't pay), and early-termination penalties.
Bundled programs — factoring + fuel card + insurance — sometimes save money and sometimes lock you into overpriced side products. Compare the standalone cost of each element before signing a bundle.
When should you factor and when should you stop?
Factor when: you're in year 1–2 of authority, your working capital is under 45 days of operating expenses, or you need to accept net-30 contract freight that would otherwise strain payroll. Almost every new authority factors for at least the first 6 months.
Stop factoring when: you've built 60+ days of operating cash reserve, your broker mix is dominated by 10-day or QuickPay-eligible brokers, and the factoring fee is a bigger monthly line item than what a business line of credit would cost. Many owner-operators self-fund by year 3.
How do you choose a factoring company without regretting it?
Ask specifically: What's your effective rate on a $2,000 invoice all-in? What's the reserve percentage and how long until it's released? What's the monthly minimum? What's the recourse period? What's the early termination penalty? Which brokers do you already credit-approve? Do you offer QuickPay discounts if I don't factor certain brokers?
Vet reputation with the OOIDA, ATA, and current customers — not just Google reviews. The two most common failure modes are: factors that slow-pay their own advances (defeating the purpose) and factors with 12-month contracts and $2,500 termination penalties buried in page 8.
Frequently asked questions
Is freight factoring a loan?
No. You sell an invoice at a discount; it does not show as debt on a balance sheet and does not require credit.
Can I get out of a factoring contract?
Often yes, but exit fees are common. Always read the termination clause before signing.
Do I have to factor every load?
Depends on the contract. Some factors require 'all-in' (every invoice) and some allow selective factoring. Selective factoring costs more per invoice but lets you keep QuickPay-eligible loads.
What is a Notice of Assignment (NOA)?
A legal document your factor sends to each broker naming the factor as the party to be paid on your invoices. Once received, the broker MUST pay the factor, not you — paying you after receiving an NOA can force the broker to pay twice.
Will factoring hurt my broker relationships?
No. Most brokers work with 20+ factoring companies daily; it's completely routine. What can hurt relationships: a factor that emails brokers aggressively or misapplies payments. Vet the factor's back office, not just the rate.
Is QuickPay cheaper than factoring?
For QuickPay-eligible brokers, yes — typically 1.5–2.5% for 2-day pay vs 3–4% for factoring. Not all brokers offer QuickPay, and not on every load. Most carriers use QuickPay where available and factor the rest.