Invoice Factoring for Trucking Companies: Freight Factoring Explained

Freight factoring is not just a financing product for trucking — it is an entire industry built around trucking payment realities. When brokers and shippers pay on net-30 or net-60 terms but drivers need fuel money and truck payments are due now, factoring bridges the gap.

More trucking companies use factoring than almost any other industry. Understanding how it works, what it costs, and when it makes sense can save significant money and keep your trucks moving.

Why Factoring Is So Common in Trucking

The trucking industry has characteristics that make factoring almost inevitable:

Net-30/60 is standard — Brokers and shippers expect to pay on terms, not immediately
Operating costs are immediate — Fuel, driver pay, insurance happen before invoices are paid
Capital intensity — Equipment payments and maintenance cannot wait for collections
Broker payment practices — Many brokers pay slowly even on net-30 terms
Shipper diversity — Hauling for multiple customers means managing multiple payment cycles

Industry Scale

The freight factoring industry handles billions of dollars annually. Dozens of companies specialize exclusively in trucking factoring, and many trucking companies factor from day one of operation.

How Freight Factoring Works

The factoring process converts your invoices to immediate cash:

Complete the load — Deliver freight and get proof of delivery
Submit invoice — Send invoice and POD to your factoring company
Receive advance — Factor advances 90-97% of invoice value within 24-48 hours
Factor collects — The factoring company collects from your customer
Receive remainder — You get the remaining balance minus the factoring fee

Factoring Fee Structures

Factoring costs vary based on volume, customer quality, and contract terms:

Fee Type	Typical Range	How It Works
Flat rate	2-4% per invoice	Same fee regardless of how long customer takes to pay
Tiered rate	1.5-3% first 30 days, +0.5% per additional 15 days	Cost increases the longer invoice is outstanding
Discount rate	3-5% discount from face value	You receive face value minus discount
Advance rate	90-97% of invoice	Percentage you receive immediately vs. upon collection

Real Cost Example

Understanding factoring economics with concrete numbers:

Invoice: $4,500 for a regional haul

Advance rate: 95% = $4,275 received within 24 hours

Factor fee: 2.5% = $112.50

Collection time: 35 days

Reserve returned: $4,500 - $4,275 - $112.50 = $112.50

Net proceeds: $4,387.50 (97.5% of invoice)

On that $4,500 invoice, you paid $112.50 to get money 34 days faster. If you factor $400,000 annually in invoices at 2.5%, that is $10,000 in factoring fees — real money, but often necessary to keep operations running.

Calculate Your True Cost

Annualize your factoring costs. 2.5% per invoice on a 30-day collection is roughly 30% APR equivalent. This is higher than most loans but often lower than the cost of not having operating capital.

Recourse vs. Non-Recourse Factoring

A critical distinction in factoring contracts:

Type	What Happens if Customer Does Not Pay	Typical Fee Premium
Recourse	You owe the factor back for unpaid invoices	Lower fees (1.5-3%)
Non-recourse	Factor absorbs loss on credit-related non-payment	Higher fees (2.5-4%)

Important nuance: "Non-recourse" typically only covers credit risk — if your customer goes bankrupt or simply cannot pay. It usually does not cover disputed invoices or payment refusals due to service issues. Read the contract carefully.

Choosing a Freight Factoring Company

Not all factoring companies are equal. Evaluate:

Advance rate — 95%+ is competitive; below 90% is below market
Fee structure — Flat rate vs. tiered; understand your likely cost
Speed — Same-day or next-day funding is standard; longer waits are not competitive
Minimums — Some require minimum monthly volume; others have no minimums
Contract length — Month-to-month vs. annual; termination fees
Fuel advances — Some factors offer advances against loads in progress
Fuel card programs — Discounts at fuel stops can offset factoring costs
Technology — App-based submission, load boards integration, online portal
Customer service — Responsive support matters when issues arise

Real-World Scenario: Owner-Operator Startup

The situation: A driver leaves a company to become an owner-operator with one truck. No business credit history. Personal savings of $40,000 cover down payment and initial operating costs, but cash will run out before first invoices are paid.

The financing approach: Signed with a freight factoring company on day one. No minimum volume, 95% advance rate, 2.75% flat fee.

Month 1 reality: Completed $18,000 in loads. Factored all invoices. Received $17,100 in advances within 24-48 hours of each delivery. After fees and reserves, net received was approximately $17,505.

The math: Factoring cost approximately $495 in month one. Without factoring, the owner would have had no cash for fuel, no way to make truck payment, and would have failed before customer payments arrived.

12-month transition plan: After building 12 months of operating history and establishing relationships with several reliable shippers, the owner applied for a $50,000 business line of credit. Now factors only slow-paying customers and collects directly from reliable shippers.

Many trucking companies use factoring as a stepping stone to other financing. The pattern of starting with factoring and transitioning to lines of credit is common and often economically optimal.

Factoring vs. Line of Credit

As trucking companies establish history, lines of credit become an alternative:

Factor	Freight Factoring	Business Line of Credit
Qualification basis	Customer creditworthiness	Your business creditworthiness
New business friendly	Yes — available from day one	Usually requires 1-2 years history
Cost	20-40% APR equivalent	10-15% APR on drawn amounts
Customer relationship	Factor contacts your customers	You maintain all relationships
Complexity	Submit each invoice	Draw when needed
Cash timing	Per invoice, 24-48 hours	Instant once established

The transition from factoring to a line of credit often saves 10-20% in financing costs. However, factoring remains valuable for slow-paying or new customers even after establishing a line of credit.

Red Flags in Factoring Contracts

Watch for these problematic terms:

All-invoice requirements — Must factor ALL invoices, even from fast-paying customers
Long-term contracts with penalties — Multi-year commitments with expensive exit fees
Hidden fees — ACH fees, invoice fees, monthly minimums, fuel card requirements
Low advance rates — Below 90% advance ties up your capital unnecessarily
Slow funding — More than 24-48 hours is below market standard
Poor recourse terms — Broad recourse provisions that create excessive risk for you

Read Before Signing

Factoring contracts can be complex. Understand the termination process, fee schedule, and what happens if a customer disputes an invoice. Ask for references from other trucking companies.

Selective Factoring Strategy

Sophisticated trucking companies use factoring strategically:

Factor slow payers — Net-60 customers, new relationships, brokers with payment history issues
Collect direct from fast payers — Established shippers who pay reliably on net-15 or net-30
Use factoring as backup — Draw on line of credit for most needs; factor when line is tight
Negotiate better rates with volume — Higher monthly volume often means lower fees
Time fuel purchases — Factor invoices strategically to have cash when fuel prices are favorable

Fuel Card Programs and Factoring

Many factoring companies offer integrated fuel card programs:

Fuel discounts — $0.03-$0.10 per gallon at participating stops
Fuel advances — Draw against loads in progress before delivery
Single-source convenience — One relationship for factoring and fuel
Fleet tracking — Monitor fuel usage and costs

The fuel discount can offset some factoring costs. On a truck burning 20,000 gallons annually, a $0.05/gallon discount saves $1,000/year — meaningful money that reduces effective factoring cost.

Freight factoring is a core part of the trucking finance ecosystem. Used strategically, it keeps operations running and trucks moving. Used carelessly, it adds unnecessary cost. Understand your options, negotiate good terms, and use factoring as part of a broader financing strategy.

If you are exploring factoring options or looking to transition to lower-cost financing, Liminal can help match you with the right providers. The process is free, takes about 2 minutes, and connects you with lenders and factors who specialize in trucking.