Factoring Company Red Flags: 10 Warning Signs Before You Sign

Why This Guide Exists

Freight factoring keeps thousands of trucking businesses alive. The cash flow gap between delivering a load and getting paid 30-60 days later is the single biggest financial pressure on small carriers and owner-operators, and factoring bridges that gap.¹ It is a legitimate, necessary financial tool. But not every company offering it has your best interests in mind.

Over the past two decades, I have watched carriers -- good operators running safe, profitable trucks -- get trapped in factoring contracts that slowly bled their margins dry. The pattern is always the same. A sales rep quotes a competitive rate, the carrier signs without reading every clause, and six months later they discover fees they never expected, a contract they cannot exit without paying thousands, and a UCC lien that follows them even after they leave. By then, the damage is done.

This guide is not anti-factoring. If you are new to factoring, start with our freight factoring guide to understand how the process works. This guide is anti-predatory contract. Below are ten specific warning signs that separate a fair factoring agreement from one designed to extract maximum revenue from carriers who do not know what to look for. Every one of these red flags comes from real contract language I have seen carriers sign.

Red Flag 1: Rates That Climb After 30 Days

The most common pricing trap in trucking factoring is the tiered or variable rate structure that starts low and escalates based on how long the broker takes to pay. You see this quoted as something like "2% for invoices paid within 15 days, 3% for 16-30 days, 4% for 31-45 days, and 5% beyond 45 days."

On paper, it sounds reasonable. In practice, it is a trap -- because you have zero control over when a broker pays. You delivered the load. You submitted the paperwork on time. The broker's accounts payable department decides when the check goes out, and the average payment cycle for freight brokers runs 35-45 days.¹ That means your "2% rate" is almost never 2%.

Here is what this looks like on a $3,000 invoice:

• Broker pays at day 12: Factoring fee = $60 (2%). This is the rate the sales rep quoted you.
• Broker pays at day 35: Factoring fee = $120 (4%). This is what you actually pay on most invoices.
• Broker pays at day 50: Factoring fee = $150 (5%). This happens more often than you think, especially with mid-sized brokers.

The difference between the quoted rate and the real rate on that single invoice is $60-$90. Multiply that across 20 invoices a month, and tiered pricing is costing you $1,200-$1,800 more per month than you budgeted.

What to look for instead: A flat rate that does not change regardless of when the broker pays. If the rate is 2.5% flat, you pay $75 on that $3,000 invoice whether the broker pays in 10 days or 50 days. Your cost is predictable, and you can budget accurately.

Red Flag 2: Termination Fees Over $500

Every factoring contract has a section on termination. Some bury it deep in the fine print. This is where you find out what it costs to leave.

Reasonable termination fees exist in the $250-$500 range. These cover the factoring company's administrative costs for closing your account, filing UCC termination paperwork, and transitioning outstanding invoices. That is fair. What is not fair is a termination fee of $1,000-$2,500 or more -- which functions less as a cost-recovery mechanism and more as a financial penalty designed to keep you locked in.

I have seen contracts with termination fees calculated as a percentage of your average monthly volume. A carrier factoring $80,000 a month with a "3% termination fee" is looking at $2,400 just to walk away. That is not a cost-recovery fee. That is a retention tool.⁴

What to ask before signing: Request the exact dollar amount or formula for the termination fee in writing. If the answer is vague, conditional, or requires you to calculate it from other contract terms, that is itself a red flag. If the fee exceeds $500, ask why. If the explanation does not satisfy you, keep looking. There are plenty of factoring companies that charge modest exit fees or none at all.

Red Flag 3: Long-Term Contracts With Auto-Renewal

A 12-month factoring contract is common in the industry. A 24-month contract should raise your eyebrows. Anything longer than that should send you to a different company.

The real danger is not just the contract length -- it is the auto-renewal clause combined with a narrow cancellation window. Here is how this typically works: your 12-month contract states that it auto-renews for another 12 months unless you provide written notice of cancellation 60-90 days before the renewal date. Miss that window by a single day, and you are locked in for another full year.

Carriers miss these windows constantly. You are running a trucking business, not managing a calendar of contract deadlines. The factoring company knows this. Some make it deliberately difficult to cancel by requiring written notice sent via certified mail to a specific address -- no emails, no phone calls, no portal submissions.

The better alternative: Month-to-month agreements or short-term commitments of 90 days with rolling 30-day cancellation notice. These exist. Companies that offer flexible terms are confident enough in their service quality that they do not need a contract to retain you. If a factoring company insists on a long-term commitment before you have even processed your first invoice with them, that tells you something about how they expect the relationship to go.

Red Flag 4: "All-In" Pricing That Is Not All-In

This one costs carriers more money than any other red flag on this list because it is the hardest to detect until you are already signed up and processing invoices.

A factoring company quotes you 2.5% with "no hidden fees." You sign. Then you start seeing line items on your statements:

• Per-invoice processing fee: $2-5 per invoice
• Wire transfer fee: $25-30 per transfer
• ACH fee: $5-10 per deposit
• Monthly minimum fee: $50-200 if your volume falls below a threshold
• Fuel advance fee: $5-15 per advance
• Credit check fee: $3-5 per broker check (charged even when brokers are declined)
• Monthly account maintenance fee: $25-50

Now let's add these up on a real scenario. You factor 20 invoices at an average of $3,000 each ($60,000 monthly volume), using ACH deposits and running credit checks on 25 brokers per month:

• Factoring fee at 2.5%: $1,500
• Per-invoice fees (20 x $3): $60
• ACH fees (8 deposits x $7): $56
• Credit check fees (25 x $4): $100
• Monthly maintenance: $35

Total actual cost: $1,751. That is an effective rate of 2.92%, not the 2.5% you were quoted. Over 12 months, those "small" fees add up to $3,012 more than you expected. You can calculate your true factoring cost with our calculator to see exactly how add-on fees affect your effective rate.

What to demand before signing: A complete, written fee schedule that lists every possible charge -- not just the factoring rate. If the sales rep says "there are no other fees," get that statement in writing and compare it against the actual contract language. The contract is what matters, not the sales pitch.

Red Flag 5: UCC Liens That Outlast Your Contract

When you sign a factoring agreement, the factoring company files a UCC-1 financing statement with your state's Secretary of State office. This is a public record that gives the factoring company a secured interest in your accounts receivable -- meaning they have a legal claim on your invoices as collateral for the advances they give you.⁵

A UCC-1 filing during an active factoring relationship is completely standard and expected. It protects the factoring company's investment, and every legitimate factor does it. The problem arises when the relationship ends.

After you terminate your factoring agreement and all outstanding invoices are settled, the factoring company should file a UCC-3 termination statement that releases the lien. Some companies do this promptly. Others drag their feet for months -- or simply never file the termination at all.

An active UCC-1 lien on your business means:

• You cannot switch to a new factoring company. The new factor will see the existing lien and refuse to onboard you because they cannot take a first-position security interest in your receivables.
• You may be denied a line of credit or equipment loan. Lenders check UCC filings, and an active lien signals that another party has a claim on your assets.
• You are effectively still tethered to the old factor even though you are no longer doing business with them.

What to include in your contract: Written language stating that the factoring company will file a UCC-3 termination within 30 days of contract termination and final settlement of all outstanding invoices. If they refuse to include this timeline, you have your answer about how they handle departing clients.

Red Flag 6: Forced Non-Recourse at Premium Rates

Non-recourse factoring sounds like a no-brainer. The factoring company absorbs the loss if a broker does not pay. You are protected. Why would you not want that?

Because what most factoring companies call "non-recourse" is far narrower than what carriers assume it means. In most non-recourse agreements, the factoring company only absorbs the loss if the broker fails to pay due to insolvency or bankruptcy. That is it. If the broker does not pay because of a freight claim, a billing dispute, a rate disagreement, a missing BOL, a damaged shipment, or any of the dozen other reasons brokers withhold payment -- you are still on the hook.³

The practical reality is that broker bankruptcies are relatively rare. Payment disputes, on the other hand, happen regularly. So you are paying a premium of 1-2% per invoice for protection that covers the least likely non-payment scenario while excluding the most common ones.

On $60,000 in monthly invoices, that 1.5% non-recourse premium costs $900 per month -- $10,800 per year. If you never experience a broker bankruptcy during that period (and statistically, most carriers will not), you paid nearly $11,000 for protection you never used.

What to do instead: Carefully read the non-recourse policy to understand exactly which scenarios are covered. If the coverage only applies to insolvency, consider whether recourse factoring at a lower rate plus your own broker vetting process is the smarter financial move. Good factoring companies provide free broker credit checks that let you avoid risky brokers in the first place -- which is better protection than non-recourse coverage that does not actually cover most disputes.

Red Flag 7: No Broker Credit Check Transparency

One of the most valuable services a good factoring company provides is free, unlimited broker credit checks. Before you book a load, you call or check the portal, and within minutes you know whether the broker has a history of paying on time, paying slowly, or not paying at all. This is not a bonus feature. It is a core function that protects both you and the factoring company.

A red flag goes up when a factoring company:

• Charges for credit checks ($3-5 per check adds up fast when you are screening multiple brokers daily)
• Limits the number of checks per month (10-15 per month is useless when you are booking loads daily)
• Provides only a pass/fail result with no detail on the broker's credit limit, payment history, or average days to pay
• Refuses to share their assessment methodology so you cannot understand why a broker was approved or declined

Without transparent credit data, you are booking loads blind. You cannot make informed decisions about which brokers to work with. And if a factoring company declines your invoice after you have already delivered the load because the broker failed their credit check, you are stuck waiting 30-60 days for direct payment from a broker you now know has credit issues.

What to expect from a good factor: Unlimited credit checks at no additional charge, accessible through a mobile app or portal, with results that include the broker's credit limit, average payment days, and any negative history. This information should be available before you accept a load, not after you deliver it.

Red Flag 8: Reserve Holdbacks With No Clear Release Timeline

When a factoring company advances you 93-95% of an invoice, the remaining 5-7% is held in a reserve account. This is standard practice -- the reserve protects the factoring company against chargebacks, disputes, and overpayments. The issue is not the reserve itself. The issue is when you get that money back.

Reputable factoring companies release reserves within 5-7 business days after the broker pays the invoice in full. The timeline is clearly stated in the contract, and you can track reserve balances and releases in your account portal.

Predatory contracts use vague language like "reserves will be released after customer payment is verified" or "within a reasonable time following payment receipt." What does "reasonable" mean? For some companies, it means 30 days. For others, 60 days. I have talked to carriers whose reserves were held for 90 days or more after the broker paid, with no clear explanation.

Here is why this matters financially. If you are factoring $60,000 per month with a 7% reserve, that is $4,200 per month sitting in an account you cannot touch. Over three months of delayed releases, you could have $12,600 or more in limbo -- money you earned that is not in your operating account. That is essentially an interest-free loan you are providing to the factoring company.²

What to require in your contract: A specific reserve release timeline stated in business days (not "reasonable time"). Five to seven business days after confirmed broker payment is the industry standard. Anything longer than 10 business days warrants an explanation. Also confirm that you can view reserve balances and release history in real time through your account portal.

Red Flag 9: Exclusive Contract Clauses

Some factoring contracts contain language requiring you to factor all of your invoices through that company. Every load, every broker, every invoice -- no exceptions. Others are slightly less restrictive but still require you to factor all invoices from specific brokers or all invoices above a certain dollar amount.

This matters because exclusivity eliminates your ability to use cheaper alternatives when they are available. Many brokers now offer quick pay at rates of 1-3%, which can be cheaper than your factoring rate on a per-invoice basis. If your contract requires exclusivity, you cannot take advantage of quick pay even when it saves you money.

Exclusive contracts also prevent you from factoring selectively -- sending only slow-pay broker invoices to the factor while collecting directly from brokers who pay within 15-20 days. Selective factoring is one of the most effective ways to minimize factoring costs as your business matures and your cash reserves grow.

The practical impact: A carrier with an exclusive factoring contract who factors $60,000 per month at 2.5% pays $1,500 in factoring fees. If that same carrier could selectively factor only the $35,000 in slow-pay invoices and collect the remaining $25,000 directly or through quick pay, their total cost might drop to $875-$1,000. The exclusive clause is costing them $500-$625 per month -- $6,000-$7,500 per year -- in unnecessary fees.

What to negotiate: Non-exclusive terms that allow you to factor selectively. If the company insists on exclusivity, understand exactly what it covers. Some exclusive clauses only apply to brokers the factoring company has already approved, which is more reasonable. Full exclusivity with no exceptions is a deal-breaker for cost-conscious operators.

Red Flag 10: Poor Reviews Across Multiple Platforms

Before you sign any factoring contract, spend 30 minutes researching the company online. This is the easiest due diligence you can do, and it will tell you more than any sales presentation.

Where to look:

• Google Reviews: Search the company name and read the most recent reviews, not just the star rating. Look for patterns in complaints, not individual grievances.
• Trustpilot: Filter for 1-star and 2-star reviews and read what dissatisfied carriers are saying.
• Better Business Bureau: Check the complaint history, not the letter grade. A company can have an A+ rating with 200 complaints if they respond to each one. The complaint details matter more than the rating.
• Trucking forums: Sites like TruckersReport have extensive threads where owner-operators share their factoring experiences, both positive and negative. These are often more detailed and honest than review sites.
• Facebook groups: Owner-operator and small fleet groups frequently discuss factoring companies. Search the group history for the company name.

What patterns to watch for:

• Multiple complaints about fee surprises -- fees that were not disclosed during the sales process but appeared on statements later
• Difficulty exiting the contract -- carriers describing unexpected termination fees, ignored cancellation requests, or auto-renewals they were not warned about
• Reserve holdback issues -- carriers waiting weeks or months for reserve releases with no communication from the factor
• UCC lien complaints -- carriers unable to switch factors because the previous company failed to release the lien

A single bad review means nothing. Every company has unhappy customers. But when you see the same complaints repeated across multiple platforms by different carriers over a period of months or years, that is a pattern -- and patterns do not lie.

One important note: Be equally skeptical of companies with nothing but glowing five-star reviews and no negative feedback at all. Real businesses accumulate some criticism. A review profile that looks too clean may indicate curated or incentivized reviews.

What Good Factoring Contracts Look Like

Not every factoring company operates with the tactics described above. Many provide transparent, fair service that genuinely helps carriers manage cash flow. Here is what a carrier-friendly factoring agreement looks like:

• Month-to-month terms or short commitments (90 days maximum) with 30-day written cancellation notice and no auto-renewal traps
• Flat-rate pricing that does not change based on broker payment speed -- the rate you are quoted is the rate you pay
• A complete, written fee schedule provided before you sign, listing every possible charge including ACH, wire, processing, and credit check fees
• Free, unlimited broker credit checks accessible through a mobile app or online portal with detailed results
• Same-day or next-day funding as the standard, not a premium add-on
• Reasonable or no termination fees -- $250-$500 maximum, with the amount clearly stated in the contract
• A clear UCC release timeline -- written commitment to file UCC-3 termination within 30 days of contract end
• Non-exclusive terms that allow you to factor selectively and use quick pay or direct payment when it makes financial sense
• Reserve releases within 5-7 business days of confirmed broker payment, with real-time tracking in your account portal

These are not unreasonable expectations. They represent the standard that legitimate factoring companies already meet. If a company cannot check most of these boxes, there are plenty that can.

Visit our factoring comparison page to see how leading companies stack up on contract terms, fees, and features.

Before You Sign: The 5-Minute Contract Checklist

Before you put your signature on any factoring agreement, verify every item on this list. Print it out and bring it to the table. Any reputable factoring company will answer these questions without hesitation.

• Ask for the complete fee schedule in writing -- not just the factoring rate, but every charge including per-invoice fees, wire/ACH fees, monthly minimums, credit check fees, and fuel advance fees. Compare this against the rate you were quoted to calculate your true effective cost.
• Confirm the contract length and renewal terms -- know the exact start date, end date, whether it auto-renews, and the precise window and method for cancellation notice.
• Get the termination fee amount in writing -- ask for the exact dollar figure or calculation formula. If it exceeds $500, ask the company to justify the amount.
• Verify the rate structure -- confirm whether the rate is flat or tiered. If tiered, calculate your realistic cost based on average broker payment times of 35-45 days, not the best-case scenario the sales rep uses.
• Ask about UCC filing and release -- confirm that a UCC-3 termination will be filed within 30 days of contract termination and get this commitment in the contract itself.
• Read the non-recourse fine print -- if you are paying for non-recourse coverage, identify exactly which non-payment scenarios are covered and which are excluded. Get this list in writing.
• Test the credit check process -- before signing, ask the company to run a credit check on two or three brokers you currently work with. Evaluate the speed, detail, and usefulness of the results.
• Clarify the reserve release timeline -- get a specific number of business days, not vague language. Confirm you will have portal access to track reserve balances.
• Check for exclusivity clauses -- confirm whether you can factor selectively or if you are required to submit all invoices. Understand any minimum volume requirements.
• Research the company online for 30 minutes -- check Google Reviews, Trustpilot, BBB complaints, and trucking forums for complaint patterns before you sign anything.

If you are a new carrier getting your authority, you are the most vulnerable to signing a bad factoring contract because cash flow pressure is highest in your first year. Take the extra time to get this right. See our guide on factoring for new authority carriers for recommendations tailored to your situation.

Compare reputable factoring companies on our comparison page, and calculate your true factoring cost before you commit to any agreement.