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Glossary

Factoring

Factoring is a financial service where a factoring company pays the carrier immediately for delivered loads (minus a small fee) instead of waiting 30-90 days for broker payment.

What Is Factoring?

Freight factoring is a financing tool that solves trucking's biggest cash flow problem: you deliver a load today but the broker does not pay for 30-90 days. A factoring company advances you 90-97% of the invoice amount within 24-48 hours of delivery. The factoring company then collects the full payment from the broker and keeps a small percentage (typically 1-5%) as their fee.

For example, if you deliver a $3,000 load and your factoring rate is 3%, the factoring company advances you $2,910 within a day. When the broker pays the full $3,000 in 45 days, the factoring company keeps $90 as their fee. You get immediate cash flow to cover fuel, maintenance, and living expenses without waiting weeks for payment.

There are two main types of factoring: recourse and non-recourse. With recourse factoring, if the broker does not pay, you owe the money back to the factoring company. Non-recourse factoring means the factoring company absorbs the loss if the broker defaults — but non-recourse rates are typically 1-2% higher. Most carriers prefer non-recourse for the protection it provides.

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Why It Matters

Cash flow is the number one killer of new trucking businesses. Waiting 30-90 days for payment while paying for fuel, insurance, and truck payments every week creates a dangerous gap. Factoring costs 1-5% but keeps your cash flowing and your truck moving.

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Real-World Example

Jamal starts his own authority and delivers three loads his first week totaling $8,500. Without factoring, he would wait 45 days for payment while still needing $2,000/week for fuel and $500/week for his truck payment. With factoring at 3%, he receives $8,245 within 24 hours (minus the $255 fee). That immediate cash keeps him on the road earning while brokers take their time paying. Over his first year, factoring costs him about $7,800 but keeps him from running out of cash and losing his business.
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How FF Dispatch Handles This

FF Dispatch helps you set up factoring at no markup. We work with several factoring companies and can recommend the best fit based on your volume and needs. We also ensure your POD paperwork is submitted quickly so your factoring advances are not delayed.

Related Terms

Proof of Delivery (POD)

A Proof of Delivery is a signed document confirming that freight was delivered to the correct receiver at the correct location in acceptable condition.

Freight Broker

A freight broker is a licensed intermediary that connects shippers who need freight moved with carriers who have available trucks, earning a commission on each transaction.

Rate Confirmation

A rate confirmation is a written agreement between a carrier and broker that specifies the load details, pay rate, pickup/delivery requirements, and terms of the haul.

Gross Revenue

Gross revenue is the total income a carrier earns from hauling freight before any expenses, commissions, or taxes are deducted.

Dispatch Service

A dispatch service is a company that finds loads, negotiates rates, handles paperwork, and manages logistics for owner-operators in exchange for a percentage of the load revenue.

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Frequently Asked Questions

Is factoring worth the fee?+
For most owner-operators, especially new authorities, yes. The 1-5% fee is far less than the cost of running out of cash, missing truck payments, or taking cash advances. As your business grows and cash reserves build, you can phase out factoring.
What is the difference between recourse and non-recourse factoring?+
With recourse factoring (lower rate), you owe the money back if the broker defaults. With non-recourse (higher rate), the factoring company absorbs the loss. Non-recourse provides more protection but costs 1-2% more.
Can I factor some loads and not others?+
It depends on your factoring agreement. Some companies require you to factor all loads (full-service), while others allow selective factoring. Check the contract terms before signing.

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