Quick answer: What is freight factoring?
Freight factoring is selling your unpaid freight invoices to a factoring company so you get paid in days instead of waiting for the broker's payment terms. The factor advances most of the invoice, collects from the broker, then pays you the rest minus its fees. Costs, reserves, recourse and contract terms vary by agreement.
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How freight factoring works
Sign an agreement
The factor reviews your authority and business, and you sign a factoring agreement that sets the fees, advance, reserve, recourse terms and how to end it.
Broker gets a notice of assignment
The factor tells your broker, in writing, to pay the factor instead of you. Under UCC 9-406, once a broker has that notice it should pay the factor, and paying you instead may not settle what it owes.
Haul and submit
After delivery you send the invoice, rate confirmation, signed bill of lading or proof of delivery and any receipts, usually through a portal or app.
Get the advance
Once the factor accepts the invoice, it pays the advance (a percentage of the invoice) minus any fees taken at funding.
Broker pays the factor
The broker pays the factor on its normal payment terms.
Reserve is settled
The factor pays you the reserve (the part it held back) minus any fees taken at settlement, on the schedule in your agreement.
What factoring costs: fees, advance and reserve
The advertised percentage is only part of the cost. Your real cost per invoice is every fee added together, divided by the invoice amount. The reserve is not a cost: it's your money, held until the broker pays.
| Factoring fee (discount) | A percentage of each invoice. Flat pricing charges one rate; tiered or aging pricing charges more the longer the broker takes to pay. |
|---|---|
| Advance | The share of the invoice paid when the invoice is funded. Some agreements advance 100% and take the fee right away. |
| Reserve | The part of the invoice held back until the broker pays. It's your money held as security, not a fee, though fees and short payments can be taken from it. |
| Per-invoice and transfer fees | Flat dollar charges such as processing, ACH, wire or same-day transfer fees. They raise the real cost above the advertised percentage. |
| Monthly charges | Monthly minimums, account or software fees. They matter most in slow months. |
| Other terms that cost money | Early termination fees, credit-check or setup fees, and charges for invoices the broker pays late or not at all. |
Recourse vs non-recourse factoring
With recourse factoring, if the broker doesn't pay, you buy the invoice back, often after a number of days set in the agreement, by repaying the advance and fees or having them taken from your reserve or later fundings.
With non-recourse factoring, the factor takes the loss for the reasons your agreement covers, often only a broker's inability to pay. Disputes about the load (damage, shortage, late delivery, missing paperwork) are commonly excluded. Non-recourse doesn't mean every invoice is guaranteed: read the exact definition in your agreement.
Full guide: recourse, exclusions and a buy-back exampleFactoring contract checklist
Ask for the full agreement and fee schedule before you sign, and get answers to these in writing.
| Clause | Ask the factor |
|---|---|
| Fee schedule | Is the fee flat or does it grow with time? What other per-invoice, transfer, monthly and setup fees are there? |
| Advance and reserve | What percentage is advanced? When is the reserve released, and what can be taken from it? |
| Recourse | Is it recourse or non-recourse? Exactly which non-payments are covered, and when do I have to buy an invoice back? |
| Every invoice or some? | Must I factor all my invoices (or all from one broker), or can I choose? |
| Minimums | Is there a minimum monthly volume, and what happens if I don't meet it? |
| Term and renewal | How long is the term? Does it renew automatically, and when must I give notice? |
| Termination | How do I end it, what does it cost, and how are open invoices and the reserve handled after that? |
| UCC filing | Will you file a UCC-1? What does it cover, and when will you file a termination after the agreement ends? |
| Funding times | What is the daily cutoff, and when are approved invoices funded, including weekends and holidays? |
| Broker approval | How do you approve brokers and set credit limits, and what happens to loads with unapproved brokers? |
Also ask any factor you're considering
- Can I see the full agreement and fee schedule before I sign?
- What is my total cost on a typical invoice, including every dollar fee?
- How and when do you notify my brokers?
- Who is my contact for payment questions, and how fast do you answer?
This checklist helps you ask the right questions. It isn't a legal review: for a large or unusual agreement, have an attorney read it.
Go clause by clause with the interactive contract checklistInvoice document checklist
Most delays start with paperwork. Before you submit, check that you have:
- Invoice. Matches the rate confirmation: load or reference number, broker name, amount and extra charges.
- Rate confirmation. Signed, with the agreed rate and payment terms.
- Signed bill of lading or proof of delivery. Readable, with the receiver's signature and date, and any shortage or damage notes.
- Receipts for extra charges. Lumper, detention, layover or other accessorials, with the broker's approval if your rate con requires it.
- Anything else your factor or broker requires. Some ask for scale tickets, photos or a specific invoice format. Check your agreement and the broker's setup packet.
Requirements vary by factor, broker and load. Your agreement and the broker's setup packet are the final word.
Build the checklist for your exact loadBroker credit vs FMCSA authority
Anyone can look up a broker's FMCSA authority and whether a bond or trust fund is on file. That shows the broker is registered, not that it pays on time. Factors approve brokers using their own credit and payment data, which isn't public. Before you haul, check the broker's authority yourself and ask your factor whether the broker is approved and has credit available.
Check a broker's authority, freeLeaving or switching factoring companies
Read the term, automatic renewal, notice and termination-fee sections first. Brokers usually need a release from your old factor (often called a letter of release) before they'll pay you or a new factor. Under UCC 9-513, once the conditions are met and you send a written demand, the factor has 20 days to file or send you a termination of its UCC filing. Expect your reserve to be settled only after open invoices are collected.
Step-by-step switching guide and UCC demand letterFAQ
How much does freight factoring cost?
It depends on the agreement. Add the percentage fee to every dollar fee (per-invoice, ACH or wire, monthly) and divide by the invoice amount to get your real rate. With tiered pricing, the fee also depends on how long the broker takes to pay. The factoring cost calculator does this for your own offer.
Is the reserve a fee?
No. The reserve is part of your invoice held back until the broker pays. It's paid to you later, minus any fees or short payments your agreement allows the factor to take from it.
What is the difference between recourse and non-recourse factoring?
With recourse, you buy back invoices the broker doesn't pay. With non-recourse, the factor takes certain losses, often only a broker's inability to pay, and usually not disputes about the load. What's covered depends on your agreement, so read the exact wording.
Why hasn't my factoring company paid my invoice?
Common reasons are missing or unreadable paperwork, an invoice still inside the normal funding time, a broker that isn't approved or is over its credit limit, or a dispute on the load. Ask the factor for the status in writing. The free problem solver walks through it.
Does an active MC number mean a broker will pay?
No. FMCSA records show a broker's authority and whether a bond or trust is on file. They don't show payment history or credit. Factors use their own credit data to approve brokers, so ask your factor about a broker before you haul.
Can I leave my factoring company?
Usually, under the terms of your agreement. Check the term, renewal and notice dates, any termination fee, and how open invoices and your reserve are handled. Your new factor and brokers will need a release so payments go to the right place.
What is a UCC filing from a factoring company?
A UCC-1 is a public notice a factor files to show its interest in your receivables. Sales of invoices fall under UCC Article 9. After the agreement ends and conditions are met, you can ask the factor to file a termination, and the UCC sets a deadline for it.
Is quick pay cheaper than factoring?
Sometimes. Quick pay is offered by one broker, load by load. Factoring covers many brokers under one agreement. Compare the real cost of each, including every fee, and whether your factoring agreement lets you use quick pay at all.
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Related tools and guides
- Factoring payment problem solver
- Factoring cost calculator
- Factoring contract checklist
- Invoice document checklist
- Recourse vs non-recourse factoring
- Cancel or switch your factoring company
- Factoring vs quick pay
- What to do when a broker doesn't pay
- Check a broker's FMCSA authority, free
- Cost per mile calculator
- Factoring companies in the THC directory
General information, not legal, tax or financial advice. Factoring agreements differ, and each state adopts the UCC with its own changes. Check your own agreement, and talk to a qualified attorney or accountant about your situation. Factoring companies can appear in the Trucking Help Center directory, including through paid partner listings. A listing is not an endorsement, and these guides and tools don't rank or favor any provider.