The cash gap between delivery and payment
A carrier pays for fuel, tolls, driver wages and the truck note during the week the load moves. The broker or shipper who owes for that load usually pays weeks later. For a small fleet or an owner-operator running several loads a week, that gap can be larger than the operating cash in the bank. Freight factoring closes it by selling the invoice for each delivered load to a factoring company, which advances most of the value right away and collects the full amount from the customer later.
In trucking, the party who owes the money (the account debtor) is most often a freight broker, sometimes a shipper that tenders loads directly. That matters because the factor is underwriting the broker's credit, not the carrier's. A new carrier with no credit history can still factor loads hauled for a broker that pays reliably, which is why factoring is so common among new authorities. If you are just getting your MC number, our guide to freight factoring with a new authority covers the start-up questions in more detail.
The paperwork behind every funded load
Freight factoring is document-driven. A factor will not advance against a load until it can see that the load was agreed to, picked up and delivered without exception. The usual packet is:
- Rate confirmation. The broker's signed load tender showing the agreed linehaul, accessorials, pickup and delivery details and the broker's MC number. It is the contract for the load and the basis for the invoice amount.
- Bill of lading (BOL). Issued at pickup and signed by the shipper, it describes what was loaded.
- Proof of delivery (POD). Usually the BOL signed by the receiver at delivery. Notes like "short two pallets" or "damaged" on the POD give the broker a reason to short-pay, so factors look at it closely.
- Lumper receipts, detention logs and scale tickets when you are billing accessorials on top of the linehaul.
- Your invoice to the broker, showing the factor's remit-to address once the account has been assigned.
Brokers keep their own records of each load. Federal rules at 49 CFR 371.3 require a broker to record the motor carrier, the bill of lading or freight bill number and the freight charges collected, to keep those records for three years, and give each party to a brokered transaction the right to review the record. That right is useful when you suspect a broker collected from the shipper and has not paid you.
Most factors now take documents through a mobile app or portal. Clear, complete scans submitted the same day the load delivers are the single biggest thing a carrier controls in how fast money arrives.
What freight factoring costs
Pricing in trucking is usually quoted as a percentage of each invoice rather than an interest rate. A FreightWaves explainer on the cost of factoring puts typical base rates at 1% to 5% of each invoice, with advance rates in its examples of 85% to 90% and reserves of 5% to 20%. One freight factor's published rate page lists a 1.5% variable rate that changes with how quickly the shipper pays, a 3% flat rate fixed for 60 days, advances of up to 95%, and a $200 monthly minimum fee that applies after 90 days.
The two pricing styles behave differently:
| Structure | How it is charged | Who it tends to suit |
|---|---|---|
| Flat rate | One percentage for each invoice, regardless of payment speed within a set window | Carriers who want predictable cost per load and haul for brokers with mixed pay habits |
| Variable or tiered | A lower starting percentage that rises the longer the invoice stays open | Carriers whose brokers reliably pay quickly |
| Non-recourse premium | An added percentage for the factor absorbing credit loss if the broker becomes insolvent | Carriers concentrated with a few smaller brokers |
FreightWaves estimates the non-recourse premium at roughly 0.5% to 1.5% added to the rate. It also lists add-on charges that appear on many freight statements, such as a $10 ACH fee, a $20 wire fee, a $15 credit check and a $50 monthly service fee in its worked examples. None of these is large alone, but on a $1,500 load a few flat fees can add more than a percentage point to the real cost. Run your own loads through the factoring calculator using your actual average invoice size, not the factor's example.
How factors approve carriers and brokers
Approval has two halves. On the carrier side, factors confirm that your operating authority is active, that your insurance is on file and that there are no existing liens on your receivables. If you previously factored or took a merchant cash advance, the prior funder's UCC filing has to be released before a new factor can take first position.
On the broker side, the factor runs credit on each customer. Most freight factors publish a broker credit check tool in their app; use it before you accept a load, not after. A broker the factor will not approve is a broker you will either have to collect from yourself or not haul for. Factors also look at whether the broker is properly registered. Under 49 CFR 387.307, a broker must keep a $75,000 surety bond or trust fund in effect, and a lapsed bond is a common red flag in credit reviews.
Expect the factor to send a notice of assignment to each broker you haul for. Under the Uniform Commercial Code, once a customer receives that notice, paying you instead of the factor no longer discharges its debt (UCC 9-406). That is why freight factoring is almost always notification factoring, and why a broker that keeps paying you directly after notice creates a problem you need to forward to the factor immediately.
Contract terms that catch carriers out
Fuel advances
Many freight factors will advance part of a load's value at pickup, against the signed rate confirmation, so you can fuel the truck before the load delivers. The terms vary widely. Ask what percentage of the rate confirmation is advanced, whether there is a separate fee for the fuel advance, and what happens if the load is cancelled or delivered late. A fuel advance is borrowed against a load that has not yet been earned, so a factor will typically recover it from the next invoice or your reserve if anything goes wrong.
Recourse windows and chargebacks
Most freight agreements are recourse, meaning that if a broker does not pay within a set period you must buy the invoice back or replace it. Check the length of that window, whether the factor deducts the chargeback from your next funding automatically, and whether fees keep accruing during it. "Non-recourse" in trucking usually only covers a broker's insolvency, not disputes over shortages, damage, late delivery or missing paperwork. The recourse vs. non-recourse guide explains where the line is usually drawn.
Volume commitments and minimums
Some contracts require you to factor all loads, or set a monthly minimum fee. A slow month, a truck in the shop or a seasonal lull can make that fee a real cost for a one-truck operation. The rate page cited above, for example, waives its monthly minimum only in months where calculated fees exceed it.
Term length and termination
Look for the initial term, whether it renews automatically, how much notice you must give to leave, and what fee applies if you leave early. FreightWaves reports early termination fees of 3% to 6% of the facility limit in some agreements. Leaving a factor also means the factor must file a UCC termination and send release letters to your brokers, which our guide on switching factoring companies walks through.
Bundled services
Fuel cards, load boards, dispatch and back-office services are often packaged with freight factoring. They can be genuinely useful, but treat them as separate products with separate value. A fuel discount does not offset a factoring rate that is a point higher than a competing offer.
When factoring is the wrong answer for a fleet
Factoring makes the most sense when your customers pay slowly and your margin can absorb a few percent per load. It makes less sense when:
- Your brokers already offer quick pay at a lower cost. Some brokers will pay in a few days for a small discount. If most of your freight moves through two or three brokers with reasonable quick-pay programs, you may not need a factor.
- You have built enough working capital to float 30 to 45 days of operating costs. At that point a bank line of credit priced as interest is often cheaper. Compare the two with the factoring vs. line of credit guide.
- You are hauling for shippers that pay quickly and directly. The cost of factoring a 10-day invoice at a flat 30- or 60-day rate is effectively much higher per day than the headline suggests.
- Your loads are frequently disputed. If short-pays and claims are routine, recourse factoring will keep charging those invoices back to you, and the problem is operational rather than financial.
Many carriers use factoring for the first year or two of a new authority, then move to selective (spot) factoring or quick pay as their cash position improves.
Frequently asked questions
Can I factor loads if my authority is brand new?
Usually, yes. Freight factors underwrite the broker who owes the invoice, so a new carrier can be approved quickly as long as its authority is active, its insurance is on file and there are no conflicting liens on its receivables. The bigger constraint is which brokers will tender freight to a new MC number and whether the factor approves those brokers' credit. Check broker credit in the factor's tool before you book loads.
What happens if a broker short-pays a load?
The factor will normally charge the difference back to you, either from your reserve or from your next funding. Short-pays usually trace to a POD exception, a disputed accessorial or a missing lumper receipt. Sending a complete, legible packet with every invoice and documenting detention as it happens is the best protection, since non-recourse coverage rarely extends to disputes.
Is a flat rate or variable rate cheaper?
It depends on how fast your brokers actually pay. If most pay within a couple of weeks, a variable rate that starts low will usually cost less. If payment timing is unpredictable or often stretches past 30 days, a flat rate fixed over a longer window protects you from fee creep. Pull 90 days of your own payment history and price both options against it.
Do I have to factor every load?
Not always. Some factors require all invoices from all customers to be factored, while others allow you to choose loads or customers. Full-ledger contracts tend to come with lower rates and tighter terms. Spot or selective arrangements cost more per invoice but avoid paying to factor loads from fast-paying customers. Read the definition of eligible accounts carefully before signing.