The Complete Guide to Freight Factoring & Financing

What is Freight Factoring?

Freight factoring is a financial service where factoring companies purchase outstanding invoices from carriers and brokers at a discount, providing immediate cash instead of waiting 30-90 days for customer payment. The factor then collects payment from the shipper or broker and remits the remaining balance (minus fees) to the carrier.

Factoring is the most common financing solution in trucking because it's based on receivables rather than credit scores, making it accessible to new carriers and small operators.

How Factoring Works

The Basic Process

1. Deliver load: Complete the freight movement and obtain proof of delivery
2. Submit invoice: Send invoice and POD to factor (often via mobile app)
3. Receive advance: Factor pays 90-97% of invoice value within hours
4. Factor collects: Factor collects full payment from customer (30-90 days)
5. Receive balance: Factor remits remainder minus factoring fee

Types of Factoring / Financing

Financing solutions are tailored to different supply chain participants:

Carrier Factoring

Invoice factoring designed for trucking companies and owner-operators who need immediate payment after delivery. Key features include same-day or next-day funding upon invoice submission, advance rates of 90-97% of invoice value, integrated fuel cards with truck stop discounts, credit checking on brokers and shippers, fuel advances on accepted loads before delivery, and mobile apps for easy invoice submission. Best for owner-operators and small carriers who need working capital to cover fuel, maintenance, and operating expenses without waiting 30-60 days for payment.

Broker / 3PL Factoring

Specialized factoring for freight brokers and 3PLs who must pay carriers before receiving shipper payment. Key features include higher volume capacity for brokerage operations, carrier payment services to pay your carriers on your behalf, credit lines that grow with your business, back-office support for invoicing and collections, and integration with brokerage TMS platforms. Best for freight brokers and 3PLs who need to bridge the gap between carrier payment terms and shipper collection cycles.

Alternative Financing

Non-factoring financing options for carriers and logistics companies needing capital beyond receivables. Key features include equipment financing for trucks, trailers, and assets, lines of credit for working capital flexibility, term loans for business expansion, equipment leasing with flexible terms, and credit solutions not tied to individual invoices. Best for established carriers seeking growth capital, equipment acquisition, or working capital without selling receivables.

Shipper Financing

Supply chain financing programs that help shippers optimize working capital while supporting carrier payment. Key features include supply chain finance / reverse factoring programs, early payment programs for carrier partners, dynamic discounting based on payment timing, working capital optimization for logistics spend, and carrier relationship strengthening through reliable payment. Best for large shippers seeking to optimize cash flow while ensuring their carrier partners have access to timely payment.

Factoring Terms & Costs

Key Terms

• Advance rate: Percentage paid upfront (typically 90-97%)
• Factoring fee: Discount rate charged (typically 1-5% per 30 days)
• Reserve: Amount held until customer pays
• Recourse vs. non-recourse: Who bears risk of non-payment

Fee Structures

• Flat rate: Fixed percentage regardless of payment timing (1-3%)
• Tiered rate: Rate increases the longer invoice remains unpaid
• PRIME+: Variable rate tied to prime rate

Additional Fees (Watch For)

• Wire transfer fees
• ACH/check fees
• Invoice processing fees
• Minimum volume charges
• Termination fees

Selection Criteria

1. Advance Rate

Higher advances mean more immediate cash. Compare 90% vs 97% advance on typical invoice sizes.

2. Fee Structure

Understand total cost including all fees. Request sample calculations based on your invoice patterns.

3. Funding Speed

Same-day vs. next-day funding matters for cash-tight operations. Evaluate cutoff times and holiday schedules.

4. Contract Terms

Review length, termination clauses, exclusivity requirements, and minimum volumes carefully.

5. Technology

Mobile apps for invoice submission, fuel card integration, and load board connections improve efficiency.

Factoring ROI

While factoring has costs, benefits include:

• Improved cash flow: Immediate access to working capital
• Growth enablement: Fund expansion without bank loans
• Bad debt protection: Transfer credit risk (non-recourse)
• Administrative savings: Outsource collections and credit checking
• Focus on operations: Spend time hauling, not chasing payments

Getting Started

Explore factoring solutions in our Factoring comparison tool to find providers that match your volume and service needs.