Freight Factoring: How It Works, What It Costs, and When to Stop
You delivered the load. Now you wait 30, 45, maybe 60 days to get paid. Meanwhile, your fuel bill is due Friday. Factoring solves the cash flow gap — but it comes at a cost most truckers underestimate.
How Factoring Works
Freight factoring is simple: you sell your unpaid invoices to a factoring company at a discount, and they pay you immediately (usually within 24 hours). Then they collect from the broker or shipper.
You Deliver a Load
Broker owes you $3,000. Payment terms: Net 30.
You Submit the Invoice to Your Factor
Send the BOL, rate confirmation, and invoice to the factoring company.
Factor Pays You (Usually Same Day)
They advance you 90-97% of the invoice — typically $2,700 to $2,910.
Factor Collects from the Broker
30+ days later, the broker pays the factoring company the full $3,000.
Factor Sends You the Remainder (Minus Fee)
Factor takes their 2-5% fee and sends you the balance. On a $3,000 load at 3%, that's a $90 fee.
What Factoring Really Costs
A 3% fee sounds small. But add it up over a year and the numbers are staggering.
| Annual Revenue | At 2% Fee | At 3% Fee | At 5% Fee |
|---|---|---|---|
| $150,000 | $3,000/yr | $4,500/yr | $7,500/yr |
| $200,000 | $4,000/yr | $6,000/yr | $10,000/yr |
| $250,000 | $5,000/yr | $7,500/yr | $12,500/yr |
| $350,000 | $7,000/yr | $10,500/yr | $17,500/yr |
Put That in Perspective
A trucker grossing $200,000/yr and paying a 3% factoring fee loses $6,000/yr — that's more than most truckers pay for cargo insurance. On a per-load basis, a $3,000 load costs you $90 in factoring fees. Over 60 loads, you've paid $5,400. That's a truck payment.
Recourse vs Non-Recourse Factoring
This is the most important distinction in factoring — and the one most truckers don't understand until it costs them.
Recourse Factoring
Lower Fee (1.5-3%)If the broker doesn't pay, you owe the money back to the factoring company.
What This Means
- You're still on the hook if the broker goes bankrupt
- If payment is 90+ days late, the factor charges you back
- You bear the credit risk of every broker you work with
- Lower fees because the factor has less risk
Non-Recourse Factoring
Higher Fee (3-5%)If the broker doesn't pay, it's the factor's problem, not yours.
What This Means
- The factor takes the credit risk — they eat the loss
- You get paid regardless of whether the broker pays
- Higher fees because the factor absorbs more risk
- Factor will reject invoices from brokers with poor credit
9 Hidden Fees to Watch For
The factoring rate is just the start. Here are the fees that eat into your margins:
ACH/Wire Transfer Fees
$5-$30 per transfer. If you get paid daily, that's $100-$600/month.
Invoice Processing Fee
$1-$5 per invoice submitted, regardless of the factoring rate.
Monthly Minimum Volume
If you don't factor enough invoices, you pay a penalty — sometimes $500+/month.
Early Termination Fee
Cancel before the contract ends? $500-$5,000+ in termination penalties.
Credit Check Fees
Some factors charge $5-$15 per broker credit check.
Aging Fees
If the broker takes longer than expected to pay, the factor charges you extra — often an additional 0.5-1% per week after 30 days.
Reserve Holdback
The 3-10% they hold back isn't just their fee — it's a reserve. Getting that money released can take weeks.
Fuel Card Markup
Many factors offer fuel cards with "discounts." Some mark up the diesel price and call the difference a discount.
UCC Filing Fee
$50-$200 upfront to file a lien against your receivables (standard, but still a cost).
7 Questions Before You Sign
What is the total fee — not just the factoring rate?
Get a complete list of every possible fee. Calculate your total annual cost at your expected volume.
Is there a monthly minimum, and what happens if I don't hit it?
If your volume drops (slow season, truck in shop), you don't want to pay penalties for not factoring enough.
What exactly does "non-recourse" mean in your contract?
Does it cover only bankruptcy? Disputes? Slow payment? Get specifics.
What is the contract length and early termination fee?
Avoid long lock-in periods. Month-to-month or 90-day notice is ideal.
How quickly will I get paid after submitting an invoice?
Same day? Next day? Some factors take 2-3 days. If you need money Friday, make sure they can deliver.
Can I choose which invoices to factor?
Some contracts require you to factor ALL invoices. If a broker pays you in 7 days, you shouldn't have to factor that load.
What happens to my reserve balance when I leave?
Some factors hold your reserve for 30-90 days after termination "in case of chargebacks." Know the timeline.
Alternatives to Factoring
Factoring isn't the only way to solve cash flow. Here are your options:
Quick Pay Programs
Many brokers offer quick pay — you get paid in 1-3 days for a small fee. Check with your brokers before signing up with a factoring company. You might not need one.
Business Line of Credit
A revolving credit line from a bank or online lender. Draw what you need, pay interest only on what you use. Requires decent credit and 6-12 months of business history.
Business Credit Card
For fuel and small expenses. Many offer 0% for 12-15 months. If you pay it off within terms, it's free money. But if you carry a balance, 20%+ APR adds up fast.
Cash Reserve
The ultimate solution: 90 days of operating expenses in savings. No fees, no contracts, no interest. Build it gradually — put 5-10% of every load into a separate account.
When to Stop Factoring
Factoring is a tool for new businesses with cash flow gaps. It's not meant to be permanent. Here's when to graduate:
You have 60-90 days of operating cash in savings
If you can cover fuel, insurance, truck payments, and living expenses for 2-3 months without new revenue, you don't need factoring.
Your brokers offer quick pay
If most of your brokers will pay in 2-5 days for 1-2%, that's cheaper than factoring — and you keep the relationship.
You qualify for a business line of credit
After 12+ months with clean financials, banks will extend credit lines at 8-15% APR. That's cheaper than 3% per invoice, which annualizes to 36%+ APR.
You're paying more in factoring fees than you'd pay in interest
Do the math: 3% on a 30-day invoice = ~36% APR. A credit line at 12% APR costs one-third as much. When you have alternatives, use them.
You're past your first year of authority
Year one is when factoring makes the most sense — tight cash, new expenses, no credit history. After year one, you should be building toward independence.
The APR Reality Check
Factoring companies quote fees as a flat percentage, not as APR. Here's what 3% really means:
Frequently Asked Questions
Does factoring affect my credit score?
Not directly. Factoring isn't a loan — you're selling receivables, not borrowing money. However, the factoring company will typically run a credit check when you apply, which creates a hard inquiry. And if you have recourse factoring and can't pay back a chargeback, that could eventually affect your credit.
Can I factor loads from any broker?
Your factoring company will run a credit check on each broker. If a broker has poor credit or a history of late payment, the factor may decline that invoice. This is actually useful information — if your factor won't accept a broker's invoices, that broker might be a risk to work with.
Will brokers know I'm using a factoring company?
Yes. The factoring company sends a "Notice of Assignment" (NOA) to the broker, telling them to pay the factor instead of you. Most brokers are used to this — it's extremely common in trucking. It shouldn't affect your relationship.
What's the typical contract length?
Anywhere from month-to-month to 2+ years. Month-to-month gives you flexibility but may come with higher rates. Long contracts lock you in but may offer lower rates. Look for 6-month or 1-year contracts with reasonable termination clauses.
Should I use the factoring company's fuel card?
Compare prices carefully. Some factor fuel cards offer genuine discounts at specific truck stops. Others mark up the price and call the difference a "discount." Compare the card price to what you'd pay at the pump or with an independent fuel card like EFS or Comdata.
Insurance Costs Eating Your Profit?
Between factoring fees and insurance premiums, new authorities have thin margins. We can't eliminate factoring — but we can make sure you're not overpaying for insurance. Let's review your coverage and see if there's room to save.
Get a Free QuoteOr call (208) 557-1435