What is freight factoring?
A plain explainer for new owner-operators. No sales pitch, just the basics so you can decide if it fits your business.
The short version
Freight factoring is when you sell an unpaid invoice to a factoring company and get most of the cash right away instead of waiting for the shipper or broker to pay. The factoring company then collects the full invoice from your customer.
Why new carriers use it
Many shippers and brokers pay their invoices in 30 to 60 days. When you are new and covering fuel, insurance, and maintenance out of pocket, that wait can be hard. Factoring pays you within a day or two of delivering the load, so your cash keeps moving while you wait on the paperwork.
What it costs
Factoring companies charge a fee, usually somewhere around 1 to 5 percent of the invoice. The rate depends on your volume, your customers, and the contract.
What to check in any contract
Before you sign with anyone, read the fine print and ask about these:
Term length and exit fees. Some contracts lock you in for a year or more and charge you to leave early.
Recourse vs non-recourse. With recourse factoring, you have to buy back an invoice if the customer never pays. With non-recourse factoring, the company absorbs certain unpaid invoices, usually for a higher fee.
Minimum volume commitments. Some contracts require you to factor a set dollar amount each month, with penalties if you fall short.