What Is Freight Factoring? A Complete Guide for Truckers

What Is Freight Factoring

Freight factoring is a financial arrangement where a trucking company sells its unpaid invoices to a third-party company (the factor) in exchange for immediate cash. Instead of waiting 30-60 days for a broker to pay you, the factoring company advances you most of the invoice value within 24 hours and then collects payment from the broker on normal terms.²

It is not a loan. You are not borrowing money that you have to pay back with interest. You are selling an asset (the invoice) at a discount. The factoring company's profit is the fee they charge for advancing you the cash early and handling collections.

For new owner operators, factoring solves the most dangerous problem in the business: the cash flow gap between delivering a load and getting paid. You burn fuel on Monday, but the broker's check does not arrive for five weeks. Without factoring or substantial cash reserves, that gap kills trucking businesses -- and it is the number one reason new carriers fail in their first year.⁶

Compare factoring companies on our comparison page to see current rates, contract terms, and features from the top providers.

How the Factoring Process Works

The mechanics of factoring are straightforward. Here is the step-by-step process from delivery to final payment.

Step 1: Deliver the Load and Get Proof of Delivery

You pick up and deliver the load as normal. At delivery, you obtain a signed Bill of Lading (BOL) or Proof of Delivery (POD) from the receiver. This document is critical -- it proves the load was delivered and is the basis for your invoice. Without it, neither the broker nor the factoring company will pay.

Step 2: Submit the Invoice to Your Factoring Company

Instead of sending the invoice to the broker and waiting 30-60 days, you submit the invoice and POD to your factoring company. Most factoring companies accept submissions by email, fax, or through a web portal or mobile app. The best platforms let you photograph the POD with your phone and submit everything in under five minutes from the cab.

Step 3: Credit Check on the Broker

The factoring company runs a credit check on the broker -- not on you. This is an important distinction. Your personal credit score is irrelevant to the factoring transaction. What matters is whether the broker has a history of paying invoices on time. Most factoring companies maintain databases of broker creditworthiness and can approve or decline an invoice within minutes.

If the broker has strong credit (companies like CH Robinson, TQL, Echo, Coyote, and XPO fall into this category), the invoice is approved quickly. If the broker has questionable credit or a history of slow payment, the factoring company may decline the invoice or offer a lower advance rate.

Step 4: Receive Your Advance

Once the invoice is approved, the factoring company advances you a percentage of the invoice value. This is called the advance rate, and it typically falls between 90% and 97%.²

Example on a $3,000 invoice with a 95% advance:

• Invoice value: $3,000
• Advance (95%): $2,850
• Reserve held: $150

The advance is deposited to your bank account or fuel card. Same-day funding is common; some companies guarantee next-business-day funding as the standard.

Step 5: Broker Pays the Factoring Company

The factoring company now owns the invoice and is responsible for collecting payment from the broker. They handle all follow-up, payment processing, and collections. The broker pays the factoring company directly on their normal payment terms (typically 30-45 days).¹ You are out of the collections loop entirely.

Step 6: Reserve Release

After the broker pays the full invoice amount, the factoring company releases your reserve -- minus their factoring rate (fee). Continuing the example above:

• Invoice value: $3,000
• Factoring fee (2.5%): $75
• Reserve held: $150
• Reserve released: $150 - $75 = $75

Your total received: $2,850 (advance) + $75 (reserve release) = $2,925. Factoring cost: $75.

That $75 is the price you paid to receive $2,850 today instead of $3,000 in 35-45 days. For most new owner operators carrying truck payments, insurance, and fuel costs, that trade-off is not just worthwhile -- it is necessary.

Recourse vs. Non-Recourse Factoring

This is the single most misunderstood aspect of freight factoring, and the distinction has real financial consequences. Understanding it before you sign a factoring agreement saves you from unpleasant surprises later.

Recourse Factoring

With recourse vs non-recourse factoring, the simplest explanation is this: if the broker does not pay the factoring company, you are responsible for the invoice. The factoring company will deduct the advanced amount from your reserve account or future advances, and you owe the money back.

When does this happen? Recourse situations arise when a broker goes out of business, refuses to pay due to a freight claim or dispute, or simply does not pay within the agreed timeframe (usually 60-90 days).

Why would anyone choose recourse? Price. Recourse factoring rates are significantly lower -- typically 1-3% versus 2-5% for non-recourse.² The factoring company is passing the broker non-payment risk to you, so they charge less.

Who is recourse factoring best for? Operators who work with established, creditworthy brokers and are confident in the credit quality of their broker relationships. If you are running loads for CH Robinson, TQL, and other major brokerages, the chance of non-payment is very low, and the 1-2% savings on every invoice adds up fast.

Non-Recourse Factoring

With non-recourse factoring, the factoring company absorbs the loss if the broker does not pay. You are not responsible for buying back unpaid invoices. This sounds like a clear advantage, and it is -- with a significant caveat.

The fine print matters. Most non-recourse agreements only protect you against broker insolvency or bankruptcy. If the broker refuses to pay because of a freight claim, billing dispute, or other non-credit-related reason, you are still on the hook. The factoring company's non-recourse protection does not cover disputes -- it covers credit failure.

Read the non-recourse clause in your factoring agreement word by word. Ask the factoring company to explain exactly which scenarios are covered and which are not. If they cannot give you a clear, specific answer, that is a red flag.

Cost Comparison: Recourse vs. Non-Recourse

Factor	Recourse	Non-Recourse
Typical rate range	1-3%	2-5%
Rate on $5,000 invoice (2% vs 3.5%)	$100	$175
Annual cost on $20K/month volume	$4,800	$8,400
Non-payment risk	You bear it	Factoring company bears it (for credit failure only)
Best for	Established broker relationships	Mixed broker portfolio, higher risk tolerance

On $20,000 per month in factored invoices, the difference between a 2% recourse rate and a 3.5% non-recourse rate is $3,600 per year.¹ That is real money -- enough to cover two months of insurance premiums or a set of tires. Weigh that cost against the actual probability of broker non-payment in your operation.

Typical Rates and Fee Structures

Factoring rates are expressed as a percentage of the invoice value, but the headline rate is only part of the story. Understanding the complete fee structure prevents surprises that erode your margins.

Rate Tiers

Factoring rates vary based on several factors:

Factor	Impact on Your Rate
Monthly volume	Higher volume = lower rate. $50K+/month gets better rates than $15K.
Broker credit quality	Blue-chip brokers = lower rate. Unknown brokers = higher rate.
Contract length	12-month commitment often gets 0.25-0.5% lower rates than month-to-month.
Recourse vs non-recourse	Non-recourse costs 1-2% more per invoice.
Advance rate	Lower advance rate (90%) = lower fee. Higher advance (97%) = higher fee.

Real Rate Examples

Here is what factoring costs on common invoice amounts at various rate tiers:

Invoice Amount	1.5% Rate	2.5% Rate	3.5% Rate	4.5% Rate
$1,500	$22.50	$37.50	$52.50	$67.50
$2,500	$37.50	$62.50	$87.50	$112.50
$3,500	$52.50	$87.50	$122.50	$157.50
$5,000	$75.00	$125.00	$175.00	$225.00

Use our factoring cost calculator to model the exact cost based on your volume, rates, and advance percentage.

Flat Rate vs. Tiered Rate Structures

Flat rate: A single percentage applied to every invoice regardless of how long the broker takes to pay. Example: 2.5% whether the broker pays in 15 days or 45 days. Simple and predictable.

Tiered rate (also called variable or escalating): The rate increases the longer the broker takes to pay. Example: 1% for the first 30 days, plus 0.5% for each additional 15-day period. If the broker pays in 20 days, you pay 1%. If they pay in 50 days, you pay 2%. Tiered rates can be cheaper on fast-paying invoices but more expensive on slow ones.

Which is better? Flat rate is simpler and easier to budget. Tiered rate can be cheaper if most of your brokers pay within 30 days. If you are just starting out and do not know your brokers' payment patterns yet, flat rate eliminates the uncertainty.

Hidden Fees to Watch For

The factoring rate is the headline cost, but hidden fees can add 0.5-1.5% to your effective rate if you are not careful. Here are the most common:

Setup fee: A one-time charge to open your account. Ranges from $0 to $500. Many companies have eliminated this, but some still charge it. If a company charges more than $100 to set up your account, negotiate it down or look elsewhere.

ACH/wire transfer fee: A per-transaction charge for depositing your advance into your bank account. Typically $0-$5 per ACH transfer, $15-$30 per wire. If you factor 15-20 invoices per month, even a $3 ACH fee adds $45-$60 monthly. Ask whether funding is included in the rate or charged separately.

Minimum volume fee: Some contracts require you to factor a minimum dollar amount per month. If you fall below it, you pay a penalty fee -- often $50-$200 per month. This is particularly dangerous for owner operators during slow freight months when you may have lower revenue. Avoid minimum volume requirements if possible.

Invoice processing fee: A per-invoice charge on top of the percentage rate. Typically $1-$5 per invoice. It sounds trivial, but at 15-20 invoices per month, it adds $15-$100 monthly.

Early termination fee: If you sign a 12-month contract and want to leave at month six, some companies charge a termination fee equal to 1-3 months of average factoring fees. This can run $500-$2,000+. Always ask about termination provisions before signing.

Reserve hold period: Some companies hold your reserve for 30-60 days after the broker pays before releasing it. This is essentially an interest-free loan that you are giving them. Look for companies that release reserves within 5-7 business days of broker payment.

Credit check fee: A per-broker charge for checking the creditworthiness of new brokers. Typically $0-$3 per check. Some companies offer unlimited free credit checks; others charge per inquiry.

Calculating Your True Factoring Cost

To know your real cost, add up everything: the factoring rate, plus any ACH fees, invoice fees, and other charges, divided by your total invoice volume. If your headline rate is 2.5% but you are also paying $5 per ACH, $2 per invoice, and $3 per credit check on 15 invoices per month totaling $20,000:

• Factoring fees: $20,000 x 2.5% = $500
• ACH fees: 15 x $5 = $75
• Invoice fees: 15 x $2 = $30
• Credit checks: 3 new brokers x $3 = $9
• Total: $614
• Effective rate: $614 / $20,000 = 3.07%

That 2.5% headline rate is actually costing you 3.07%. Know your real number.

Factoring vs. Alternatives

Factoring is the most common cash flow tool for trucking companies, but it is not the only option. Here is how it compares to the main alternatives.

Factoring vs. Quick Pay

Many brokers offer "quick pay" programs that pay your invoice in 2-5 business days instead of the standard 30-45 days. The broker charges a fee -- typically 1.5-3% of the invoice -- for the accelerated payment.

Factor	Freight Factoring	Broker Quick Pay
Speed of payment	Same day to 24 hours	2-5 business days
Cost	1-5% per invoice	1.5-3% per invoice
Who runs collections	Factoring company	Not applicable (broker pays you directly)
Works with all brokers	Yes (if broker passes credit check)	Only brokers who offer quick pay
Contract required	Sometimes	No
Credit checks on brokers	Yes (protects you)	No

Quick pay can be cheaper than factoring on a per-invoice basis, but it is only available from brokers who offer it -- which is not all of them. If you work with 10 different brokers and only 3 offer quick pay, you still need a solution for the other 7.

For a detailed comparison of when each option makes more sense, see our factoring vs quick pay comparison.

Factoring vs. Business Line of Credit

A business line of credit lets you borrow against a revolving credit limit and pay interest only on the amount drawn. Interest rates run 8-18% APR for small trucking businesses.⁸

Factor	Freight Factoring	Line of Credit
Approval difficulty	Easy (based on broker credit)	Harder (based on your credit and business history)
Cost	1-5% per invoice	8-18% APR on drawn amount
Time to set up	3-5 days	2-6 weeks
Credit requirements	None (your credit is not checked)	600+ personal score, 1-2 years business history
Flexibility	Per-invoice basis	Draw and repay as needed
Best for	New operators, immediate cash needs	Established operators with steady cash flow

A $20,000 line of credit drawn for 30 days at 12% APR costs about $200 in interest. Factoring $20,000 at 2.5% costs $500. On pure cost, the line of credit wins -- but it is much harder to get approved for, especially with a new authority.

Factoring vs. Business Credit Card

Some operators use business credit cards to bridge the cash flow gap, putting fuel and expenses on the card and paying it off when broker payments arrive.

Pros: No factoring fees, rewards points, builds business credit. Cons: High interest rates if you carry a balance (18-26% APR), limited credit lines ($5,000-$25,000 for new businesses), easy to overspend, does not solve the cash flow gap for large expenses like insurance or truck payments.

Credit cards can supplement your cash flow strategy but should not be your primary tool. The interest rates on carried balances far exceed factoring costs.

When Factoring Makes Sense

Factoring is most valuable in specific situations. Understanding when to use it -- and when to stop -- keeps you from paying for a service you no longer need.

When to Use Factoring

• First 6-12 months of operation. Your cash reserves are thin, broker payment cycles are new, and you need predictable cash flow to survive.⁶ Factoring is nearly essential during this period.
• When you work with slow-paying brokers. Some brokers routinely pay in 45-60 days. Factoring converts that wait into same-day cash.
• During growth periods. Adding a truck, taking on more loads, or entering new lanes all require capital. Factoring your existing invoices funds the growth without taking on debt.
• During seasonal slowdowns. When freight volume drops and rates soften, factoring keeps cash flowing even when loads are less frequent.

When to Reduce or Stop Factoring

• When you have 60-90 days of operating cash in the bank. If you can cover two to three months of expenses without revenue, you do not need to factor every invoice. Start by factoring only the slow-paying brokers and keeping the rest.
• When your brokers offer competitive quick pay. If your main brokers offer 2% quick pay and your factoring rate is 3%, switch to quick pay where available.
• When the math stops working. If you are factoring $25,000/month at 3%, that is $9,000/year in factoring fees. At some point, building a cash reserve to self-fund the payment gap saves you that money permanently.
• When you qualify for a line of credit. After 1-2 years of business history with clean records, a line of credit at 10-12% APR is cheaper than factoring for most operators.⁵

The Gradual Transition

Most successful operators do not go from 100% factoring to zero overnight. They transition gradually:

1. Months 1-6: Factor everything. You need the cash flow and cannot afford to wait.
2. Months 7-12: Build a small cash reserve. Start self-funding invoices from the fastest-paying brokers.
3. Year 2: Factor 50-70% of invoices. Self-fund fast-pay brokers and use quick pay where available.
4. Year 3+: Factor only slow-pay or high-dollar invoices. Maintain a cash reserve that covers 60+ days of expenses.

Some operators keep a factoring account active indefinitely as a safety net, even if they only use it occasionally. There is nothing wrong with that approach -- having the option costs you nothing until you use it.

What to Look for in a Factoring Company

Not all factoring companies are created equal. The difference between a good factor and a bad one can cost you thousands of dollars per year and create operational headaches that distract from running your business.

Non-Negotiables

• No long-term contracts -- or at minimum, the option for month-to-month service. You should be able to walk away without paying an early termination penalty.
• Same-day or next-day funding -- waiting 3-5 days for your advance defeats the purpose.
• Transparent fee structure -- every fee disclosed upfront, no surprises on your first statement.
• No minimum volume requirements -- or very low minimums. Slow freight months should not trigger penalty fees.
• Free credit checks on brokers -- you need to check broker credit before booking loads, not just before factoring.
• A functional mobile app or web portal -- submitting invoices should take minutes, not hours.

Nice to Have

• Fuel card integration -- some factoring companies offer bundled fuel cards with additional discounts.
• Free broker credit checks before you book -- lets you screen brokers for creditworthiness before you agree to haul their freight.
• Carrier packets and compliance support -- some factors help with onboarding documentation.
• No reserve hold -- immediate release of reserves when the broker pays.

Red Flags

• Rates that seem too good to be true. A factoring company advertising 0.5% rates is making its money somewhere else -- hidden fees, high reserves, or unfavorable contract terms.
• Contracts longer than 12 months. Multi-year factoring contracts lock you in while giving the factoring company no incentive to keep you happy.
• Vague language about "non-recourse" coverage. If they cannot clearly define which scenarios are covered, assume nothing is.
• Aggressive sales tactics. A factoring company that pressures you to sign today is not acting in your interest.

Compare factoring companies to see side-by-side reviews, rates, and contract terms from the top providers in the trucking industry.

Frequently Asked Questions

The FAQ section is built into the frontmatter above for structured data. Here is additional context on common questions.

Does Factoring Affect My Credit Score?

No. Factoring companies check your brokers' credit, not yours. Opening a factoring account does not appear on your personal credit report, and factoring activity is not reported to credit bureaus. This is one of the key advantages of factoring over traditional financing -- your personal credit is not a factor (no pun intended) in approval or pricing.

Can I Factor Only Some of My Invoices?

It depends on your factoring agreement. Some companies offer "selective factoring" or "spot factoring" where you choose which invoices to factor on a case-by-case basis. Others require you to factor all invoices from a given broker (called "whole ledger" or "notification" factoring). Selective factoring gives you more flexibility but often comes with slightly higher rates. Clarify this before signing.

What Happens to My Factoring Account If I Add Trucks?

Most factoring companies can accommodate growth. Adding trucks and increasing your factoring volume usually improves your rate, since higher volume means better pricing. Notify your factoring company when you add trucks so they can adjust your account and ensure there are no volume caps that might limit your advances.

Next Steps

Factoring is a tool -- not a crutch, not a luxury, and not a permanent fixture. Used correctly, it keeps your trucking business alive during the cash-poor startup phase and gives you the runway to build the reserves that eventually make it unnecessary.

Here is your action plan:

1. Calculate your factoring costs. Use our factoring cost calculator to see exactly what factoring will cost based on your projected invoice volume and rate tier.
2. Compare providers. Compare factoring companies side by side to find the best match for your volume, equipment type, and contract preferences.
3. Read the contract. Every word. Especially the sections on recourse obligations, fee schedules, reserve hold periods, and termination provisions.
4. Set a transition plan. Decide now when and how you will reduce your reliance on factoring. Having that plan from day one keeps you focused on building the cash reserves that make it possible.
5. Track your effective rate. Every month, divide your total factoring costs (all fees, not just the headline rate) by your total invoiced amount. If that number creeps above 4%, it is time to renegotiate or switch providers.

The owner operators who use factoring well treat it as a deliberate financial strategy with a clear purpose and a defined exit plan. The ones who struggle with it treat it as a permanent cost of doing business without ever questioning whether they still need it. Be the former.