The cash flow problem
Brokers and shippers commonly pay on terms of 30 to 60 days. Meanwhile, fuel, repairs, insurance, and truck payments don't wait. That gap is where many small carriers get squeezed.
What freight factoring is
Freight factoring is when you sell your unpaid freight invoices to a factoring company. Instead of waiting weeks, you receive most of the invoice value quickly, often within a day or two. The factoring company then collects payment from the broker.
How it works, step by step
- Deliver the load and get a signed BOL.
- Submit your invoice and paperwork to the factoring company.
- Get paid an advance, minus the factoring fee.
- The factor collects from the broker.
Recourse vs non-recourse
- Recourse factoring: if the broker doesn't pay, you may have to buy the invoice back. Fees are usually lower.
- Non-recourse factoring: the factor takes on some credit risk if the broker fails to pay for covered reasons. Fees are usually higher. Read what is and isn't covered.
Extra benefits
Many factoring companies also offer broker credit checks, fuel cards or fuel discounts, and back-office collections, which can help you avoid slow-paying brokers before you haul for them.
Questions to ask before signing
- What is the fee, and are there extra charges (ACH, monthly minimums, setup)?
- Is there a contract term or termination fee?
- Do I have to factor every invoice?
- How fast is funding, and is same-day available?
- Recourse or non-recourse?
Factoring and dispatch together
When your dispatcher and factoring company work together, paperwork moves faster and you get paid sooner. Route Dispatch partners with OTR Solutions, but using a partner is always optional.