Straight answer
What is freight factoring?
You sell your unpaid invoice to a factoring company at a discount, and they pay you within a day or two instead of you waiting thirty-plus days for the broker. The factor then collects from the broker. You trade a percentage of every load for immediate cash flow.
For a new carrier with no reserves, that trade is often the difference between running and parking. The problem isn't factoring itself — it's the contracts.
The maths
What a 3% rate actually costs
A factoring rate looks small because it's quoted per invoice. Annualise it and the picture changes. If you're paying 3% to get paid 30 days early, you are effectively paying around 36% a year for that money. That isn't an argument against factoring — it's an argument for treating it as expensive short-term finance and getting off it when you can.
On $300,000 of annual gross, a 3% rate is $9,000 a year. That is roughly what a dispatcher costs. Worth knowing before you decide factoring is the cheap option and a dispatcher is the expensive one.
Recourse vs non-recourse
- Recourse — cheaper rate, but if the broker doesn't pay, you owe the money back. You carry the credit risk.
- Non-recourse — higher rate, and the factor absorbs the loss if the broker goes under. But read what it actually covers: many non-recourse agreements only cover broker insolvency, not a broker who simply disputes the load or refuses to pay. That is a much narrower promise than it sounds.
Contract terms that trap carriers
Read these before you sign anything
Minimum volume requirements — you must factor a set dollar amount monthly or pay a penalty. Long lock-in terms with early termination fees. All-invoice clauses requiring every load to go through them, so you can't factor selectively. UCC filings against your business that can complicate other financing. Reserve accounts where a portion is held back and released slowly. Fee stacking — wire fees, ACH fees, fuel card fees, monthly minimums on top of the headline rate.
When it makes sense
- Your first six to twelve months, before you have reserves
- When you're growing faster than your cash can support
- When a specific load is worth taking but you can't wait 45 days for the money
When to get off it
Once you have a cash buffer covering about a month of operating costs, the annualised cost of factoring usually exceeds what it's worth. Plan the exit when you sign, and check whether your contract lets you.
Answers
Frequently asked questions
How much does trucking factoring cost?
Rates are quoted per invoice, commonly in the low single-digit percentages, plus fees that vary widely by company. What matters is the annualised cost: paying 3% to be paid 30 days early is roughly 36% a year for that money. Compare the total cost including all fees, not the headline rate.
What is the difference between recourse and non-recourse factoring?
With recourse factoring you owe the money back if the broker doesn't pay, so you carry the credit risk and the rate is lower. Non-recourse means the factor absorbs certain losses, but read the definition carefully — many agreements only cover broker insolvency, not a broker who disputes or simply refuses to pay, which is far narrower than it sounds.
Should a new owner-operator use factoring?
Often yes, for the first six to twelve months, because 30-plus day payment terms will starve a carrier with no reserves and force them into bad loads. Treat it as expensive short-term finance, avoid long lock-ins and minimum volume clauses, and plan your exit from it as soon as you have a cash buffer.
Rather have someone else handle this?
This is what we do every day for carriers. Dispatch from 6% of gross or $300 a week, no contracts, first week free.