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What is freight factoring?

With long payment terms and high expenses, freight factoring offers a solution to improve cash flow and outsource invoice follow-up. It’s common in the trucking industry for companies to offer net-30 or net-60 payment terms, but many customers pay late. Add to that that the average cost of a truck has increased $1.13 per mile before adding the driver’s salary. With factoring, you’ll sell invoices to get a portion of the invoice — up to 95% — right away.

Find all the reasons freight factoring can help your company and what to look for in  factoring companies here.

How does freight factoring work?

Freight bill factoring, sometimes called load factoring, is invoice factoring for the trucking industry. Freight factoring companies take on some of the accounts receivable of your business. To do this, your company will sell unpaid invoices to a factoring company in exchange for a percentage of the invoice value upfront. 

The factoring company will collect payments for the invoices and pay you the rest of the invoice value minus a fee. Most trucking factoring companies charge 2.5% to 5% of the invoice value for this service. 

Freight factoring is a way to outsource collections. Instead of wasting time on collection calls and follow-up, let the factoring company focus on collections. For small businesses or owner-operators, this can save valuable time you can dedicate to other aspects of the business. 

There are two types of freight factoring: recourse and nonrecourse factoring. With recourse factoring, if the client doesn’t pay, you’ll be responsible for reimbursing the invoice value to the factoring company. With nonrecourse factoring, the factoring company will bear more responsibility, but this will come with a higher fee. 

Why do trucking companies use factoring?

Trucking companies utilize freight factoring services to improve cash flow and outsource collections. Large trucking companies often negotiate a factoring contract more favorably and outsource this aspect of the business. 

Smaller trucking companies can instead choose spot factoring, where they choose to factor certain invoices based on collections or cash flow needs. In this case, you can still collect invoices directly with clients.  This has the added advantage that you are able to maintain the privacy of select customers to protect certain more delicate business relationships.  

How much do freight factoring companies charge?

Freight factoring fees vary by company, invoice value and customer credit score. Most freight factors charge between 2.5% and 5% of the invoice value. Negotiated contracts may be on the lower end of this range, while spot contracting can be higher — it varies by company and situation. You can always try to negotiate.

What happens after the factoring company gets paid?

After the factoring company pays you for the load, it is responsible for collecting payments. Clients pay the factoring company directly for the full invoice value. After the factoring company is paid in full, it will transfer any remaining invoice value to you, less its fees. 

For example, if the factoring company paid you 90% of the invoice value and its fees are 5%, you’ll get all but 10% upfront. After the invoices are paid, it will transfer the remaining 5% of the invoice value and retain 5% as its fees. 

How do factoring companies assess risk?

Factoring companies’ business is based on taking on the risk of later payment for a fee. They assess the potential risk by looking at your customer base. They may check credit scores and payment history to determine whether there is additional risk in factoring invoices with your company. 

Difference between recourse and nonrecourse freight factoring

Recourse and nonrecourse factoring are similar but have one key difference — who assumes the greatest risk? With recourse factoring, the factor has a recourse clause, which states that you will be responsible for the invoice value if your client doesn’t pay. 

In nonrecourse factoring, the factor takes the risk under certain circumstances, and you won’t have to pay an unpaid invoice. This is usually only when a customer declares bankruptcy or goes out of business between when you factored the invoice and the invoice was due. Be sure to carefully read the recourse or nonrecourse clause to understand the risk your company must assume. 

Freight factoring example

Suppose your company has 10 loads in March. All have been invoiced with net-60 terms. The total value of the 10 invoices is $15,000. Rather than wait two months and have to follow up with clients for collections, your company sells the invoices to a freight factoring company that charges 4% of the invoice value. 

You’re paid 90% of the invoice value upfront, which is $13,500, to pay for maintenance, employee salaries and other expenses. After 60 days, when the factoring company has received payments, it retains $600 as its 4% factoring fee and transfers the remaining $900 to your company. 

That $600 in fees is less than you’d pay an employee to work in collections and follow up and allows you to receive the funds within days instead of months. 

What should you look for in a freight factoring company?

Freight factoring makes sense for trucking companies of all sizes, but that doesn’t mean all factors are created equal. Here’s what to look for in a factoring company. 

Industry experience

Reputation matters in business, and that’s true when choosing a factor. It’s important to work with a company you can trust that has years of experience in the freight factoring arena. Look for positive online reviews, and ask the factoring company to provide references to speak to about their experience. 

Same-day funding

How fast the factoring company pays and under what circumstances can make a difference to your company’s long-term success and access to funds when you need them the most. Obtaining simple same-day funding removes the hassle and waiting, simplifying access to funds. 

Fuel advancements

Fuel is one of the largest expenses for trucking companies — especially owner-operators.  A fuel advancement pays for fuel on a load before it’s delivered. Working with a freight factoring company offering fuel advances can help ensure you’re never short on cash to deliver the next load on time. 

Premier customer service

When you factor invoices, you’re turning over collections responsibility to the factoring company. In that sense, it acts as a representative of your company to clients. For this reason, premier customer service is essential. You want to work with a company that is clear and professional both for clients and in addressing your company’s needs. 

Additional incentives

A good freight factoring company will offer additional incentives like free credit checks, truck and maintenance repair programs and roadside assistance programs. Compare the additional incentives that are most valuable to you and ask for possible additional incentives or specials at signup. 

Transparency around terms and fees

Transparency about terms and fees is essential to understand costs and obligations and their impact on your bottom line is important in freight factoring. You need to know exactly how much you’ll have to pay for fees and when an invoice will be factored. 

Be sure to ask about maximum borrowing capacity, as some factoring companies limit how much you can borrow against outstanding invoices. 

Freight factoring vs. quick pay

Quick pay is a funding option for trucking companies paid by a broker. While freight factoring and quick pay both offer to fund against invoices, freight factoring is usually faster than quick pay and offers greater flexibility to trucking companies. 

It usually takes two to five days to get a QuickPay from a broker, while most factoring companies pay within one business day,

Final tips on trucking factoring

Trucking factoring can offer a quick cash flow solution and a way to outsource collections at a reasonable cost. For small and medium-sized businesses in particular, it can help to finance a freight brokerage or improve cash flow during expansion periods. The convenience and cost-effectiveness of freight factoring can serve your company and its future growth. Find some of the best factoring companies for trucking here.  


Is freight factoring worth it?

Freight factoring can improve cash flow by quickly converting unpaid invoices into cash. Whether it’s “worth it” depends on your need for immediate liquidity and the fees involved.

Is factoring high risk?

Factoring can carry risk for both the factoring company and the client, including potential for fraud and non-payment. Careful due diligence is essential to mitigate these risks.

Do you need good credit for a factoring company?

Good credit is not always required for factoring; the focus is often on the creditworthiness of your customers. However, your own financial stability can still influence the terms offered.

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TAFS is More than Freight Factoring

As one of the industry leaders, TAFS assists trucking companies to increase cash flow with some of the lowest factoring rates in the industry and a 1-hour advance option.