What is factoring in trucking? How a load becomes cash, step by step

The broker's view: what changes when you factor

From the broker's side, very little changes, except where the money goes:

1. The broker gets a notice of assignment. It tells them your invoices now belong to the factor and must be paid there.
2. The broker updates its records. Your carrier profile now shows the factor as the payee.
3. The factor verifies your invoice. It may call or email the broker to confirm the load was delivered and the amount is right.
4. The broker pays the factor on its usual terms, often 30 days or more.
5. The factor pays you the reserve, minus its fee, once the broker's payment arrives.

Brokers handle factored carriers every day; many of the carriers they book use a factor. What brokers dislike is confusion: an invoice sent to them and to a factor, or a payment that goes to the wrong place. Keep one billing path, and tell every new broker who to pay before the first load.

NOA and verification, in plain words

The notice of assignment is the legal piece. Once a broker has received it, paying you directly doesn't settle the invoice with the factor, so a careful broker always pays the factor. If a broker pays you by mistake, the money belongs to the factor and must be passed on, usually by endorsing the check or forwarding the payment the same day.

Verification is the factor protecting itself. Before advancing money, it checks that the load is real, delivered and billed at the agreed rate. Clean paperwork makes verification quick; a missing signature or a rate that doesn't match the rate con slows it down. Some factors verify every load; others verify new brokers or larger invoices only.

What you send for each load

• Rate confirmation: the broker's signed agreement for the load, showing the rate and any extras.
• Bill of lading or proof of delivery: signed by the receiver, with no unexplained exceptions such as shortages or damage notes.
• Your invoice: load number, amounts and dates matching the rate con.
• Extras: receipts for reimbursable costs such as lumpers or scales, and approval for detention or layover.

Most factors take these through an app: photograph the documents at delivery and submit them before you leave the dock. RTS Financial, for example, states that carriers can upload invoices in its app and get paid the same day. Source

Worked example: a heavy haul invoice EXAMPLE

A lowboy carrier moves an excavator 480 miles. The rate con shows a $4,200 linehaul, $360 in state permits and $900 for escorts billed as pass-through lines: $5,460 in total. The carrier uploads the rate con, the signed bill of lading, the permit receipts and the escort invoices on delivery day.

The advance covers the permits and escorts already paid, plus fuel for the next move. Note that the fee applies to the whole invoice, pass-through lines included, in this example; ask how your factor treats permit and escort lines, because it changes the real cost of factoring a heavy haul load. The 90% advance and 3% fee are illustrations, not quotes.

How the fee and advance work

The advance is the share of the invoice paid up front; RTS Financial states it advances more than 90 percent within 24 hours. Source The fee is a percentage of the invoice, taken when the broker pays. RTS Financial describes it as a small fee and doesn't publish the rate; you get a quote. Source Across the industry, one factoring company's published article puts recourse factoring at about 1.5% to 3.0% per invoice and non-recourse at 2.5% to 5.0%. Source See factoring rates for how flat and tiered pricing compare.

Factoring every load or only some

Agreements differ on this. Some let you choose which invoices to factor, sometimes called spot factoring, and leave the rest with brokers who pay quickly. Others require you to factor every invoice from a given customer, or a minimum dollar amount each month. Choosing loads gives flexibility; factoring everything can bring a lower rate. Whatever you agree, don't send the same invoice to the broker and the factor, and don't switch a broker in and out of factoring without telling both sides.

Why a load doesn't get funded

• Paperwork problems: an unsigned bill of lading, a missing page or a delivery note about damage or shortage.
• Mismatched amounts: the invoice doesn't match the rate con, or includes extras the broker didn't approve.
• Broker credit: the factor won't buy invoices from a broker with a poor payment record.
• Prior liens: another lender or factor already has a claim on your receivables.

Check a broker with your factor before booking, and fix paperwork at the dock, not a week later.

How long the whole cycle takes

From delivery to advance is usually a day or less once your account is set up and the paperwork is clean. From advance to reserve release depends on the broker: the factor can only release the reserve after the broker pays, so a 30-day broker means about a month, and a slow payer means longer. Track open reserves the way you track miles; they are money you have earned but not yet received.

Recourse vs non-recourse, briefly

With recourse factoring, if a broker never pays, you buy the invoice back or replace it with another. With non-recourse, the factor takes some of that risk, usually only when the broker goes out of business or can't pay, not when there is a dispute over the load. Non-recourse costs more. Neither protects you from a load dispute caused by missing paperwork. Details in non-recourse factoring.

Collections: who chases late payers

One reason carriers factor is to stop chasing payments. The factor sends reminders and follows up with slow brokers; RTS Financial states it manages collections. Source You still have a part to play: answer the factor's questions quickly, send any missing document the same day, and avoid booking more loads with a broker the factor says is paying slowly.

Starting with a factoring company

1. Request a quote with your monthly volume, brokers and authority details.
2. Read the agreement: fee, advance, reserves, recourse, contract length and minimums.
3. Send your W-9, certificate of insurance and authority details, and sign.
4. The factor sends notices of assignment to your brokers and checks for prior liens on your receivables.
5. Submit your first load and confirm when the advance arrives.

If you factored before, the old factor may need to release its claim on your invoices before a new one can start; ask both sides how that works. The big picture, including when factoring is worth it, is on our freight factoring page.

Leaving a factoring company

If you stop factoring or move to another factor, the old one has to release its claim on your invoices and tell your brokers to pay you, or the new factor, again. That release is usually a letter to each broker. Read the agreement for notice periods and any fee to leave early, settle open invoices and reserves, and confirm with each broker where the next payment should go before you send another invoice.

Factoring and your dispatcher

A dispatcher and a factor do different jobs. The dispatcher finds and negotiates loads; the factor pays you for them. When we dispatch you, the broker sends the rate confirmation straight to you, so you hold every document the factor needs, and we never handle your payments. Factoring is optional and never required to dispatch with us. See dispatch for owner-operators.