Freight factoring ― also referred to as trucking factoring ― is a form of invoice factoring that allows transport companies, including owner-operators, to turn unpaid invoices into immediate cash. It is common for a trucking company to use freight factoring to cover cash flow gaps while they wait to be paid by their shippers or freight brokers.
If you’re looking for a freight factoring company and generate at least $100,000 per year and have been in business for at least three months, you may qualify at BlueVine. It offers financing from $5,000 to $5 million with rates starting at 0.25% per week. Prequalify online in minutes and get funded in as quick as 24 hours.
What Freight Factoring Is
Freight factoring, or trucking factoring, is an accounts receivable factoring option that monetizes your outstanding invoices by paying immediately for work you’ve already completed. The factoring company will traditionally pay you 80% to 90% of the value of your outstanding invoice upfront and pay the remaining balance minus their fees once your customer pays the invoice.
Freight factoring is beneficial to both small owner-operators looking to get paid immediately to take on additional work and for larger trucking businesses looking to fill a cash flow gap. It is also a great way to get financing if you’re not a prime borrower. You can qualify based on the creditworthiness of your customers instead of your own.
The terms and qualifications for freight factoring will typically vary based on how much factoring you need. Larger trucking companies who do $30,000 or more per month in invoice volume will typically seek different factoring companies than smaller owner-operators doing less than $30,000. Our comparisons throughout this article will take both types of businesses into account.
The typical industry standard terms, rates, and qualifications of freight factoring for trucking companies are:
Freight Factoring Qualifications, Terms & Costs At a Glance
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If you’re unfamiliar with invoice factoring in general, you can learn more by checking out our all-inclusive guides. For large trucking companies, you should learn about invoice factoring, but smaller companies or owner-operators may want to look into accounts receivable financing, which is similar and is used for smaller factoring needs.
BlueVine offers up to 90% of the invoice amount upfront with interest rates starting at 0.25% per week. If you have annual revenue of $100,000 or more, and a credit score of 530 or higher, you may qualify for up to $5 million. Qualified borrowers can get approved in minutes and funded in as little as 24 hours.
Top Freight Factoring Companies
When looking for a freight factoring company for your business, you need to know the volume of the invoices that you plan on factoring and what your goal is. If your goal is to outsource your accounts receivable process, you’ll want a different type of factoring company than someone looking to get quick financing.
Three companies that provide freight factoring are BlueVine, Paragon Financial Group, and TCI Business Capital. BlueVine’s factoring program is flexible enough that it could be a solution for both smaller trucking companies and larger ones, while TCI Business Capital’s freight factoring program is geared more towards larger trucking companies, and Paragon Financial Group’s freight factoring falls in between the two to meet the needs of mid-range freight companies.
Freight Factoring Companies At a Glance
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The basic rates, terms and qualifications for freight factoring through BlueVine, Paragon Financial Group, and TCI Business Capital include the following.
BlueVine for Smaller Volume Freight Factoring
BlueVine is a good freight factoring solution if you have a minimum of $5,000 in unpaid invoices to factor up front. This is the middle ground solution that will work for some owner-operators and some larger trucking companies.
The basic terms, costs, and qualifications for freight factoring with BlueVine are:
- Funding amount: $5,000 to $5 million
- Advance rate: 85% to 90%
- Discount rate: Starting at 0.25% per week
- Recourse or nonrecourse: Recourse
- Qualifications: At least three months in Business, credit score of 530 or higher, United States-based business, and $100,000 or more in annual revenues
Paragon Financial Group for Nonrecourse Freight Factoring
Paragon Financial Group is a good option if you are looking for a factoring company that offers a nonrecourse factoring agreement. It offers factoring in amounts ranging from $25,000 to $10 million, with discount rates between 1.25% to 2% per 30 days. You can receive initial funding within three to 10 days, and within 24 hours thereafter.
The basic cost, terms, and qualifications for freight factoring with Paragon Financial Group are:
- Monthly funding amount: $25,000 to $10 million
- Advance rate: 80% to 90%
- Discount rate: 1.25% to 2% per 30 days
- Recourse or Nonrecourse: Nonrecourse
- Qualifications: Creditworthy customers, factor $25,000 or more per month, and invoices due in 30, 60, or 90 days
TCI Business Capital for Larger Volume Freight Factoring
A good choice for large volume freight factoring of $50,000 or more per month is TCI Business Capital. It does a lot of factoring in the trucking industry and can get your company approved within three to four days.
The basic terms, costs, and qualifications for freight factoring with TCI Business Capital are:
- Monthly funding amount: $50,000 to $20 million
- Advance rate: 90% on business-to-business or business-to-government customer invoices that are due in 30 to 90 days
- Discount rate: 1% to 4% per invoice, charged when the invoice is paid in full
- Recourse or nonrecourse: Recourse
- Qualifications: Creditworthy customers, factor $50,000 or more per month, and invoices due in 30, 60, or 90 days
For more information about invoice factoring for large volume freight factoring companies, you can check out our invoice factoring buyer’s guide. If you’re looking at factoring less than $50,000 per month, then you’ll want to look at either Paragon Financial Group or BlueVine for your invoice factoring needs.
Who Freight Factoring Is Right For
Freight factoring is a good option for owner-operator trucking companies that want to get paid immediately for work that they have already done to take on additional work. Larger companies may choose freight factoring when they that want to outsource their accounts receivables or need immediate payment on outstanding invoices for working capital.
Borrowers with bad credit may find this to be their most affordable working capital financing option because they can qualify based on the creditworthiness of your customers instead of your own.
“The one-rig owner-operator is typically looking for cash flow assistance. A larger company is looking for efficiency because when cash flow isn’t an issue, attention to continued growth typically is. Either size company may find the balance in freight factoring of not needing to manage the communication, payments, and reporting that goes along with internal operations very appealing.”
— Amy Van Ness, Controller at FreightCenter
Freight Factoring Rates, Terms & Qualifications
The rates, terms, and qualifications for freight factoring vary based on the size of your company and the value of the invoices that you are factoring. Larger trucking companies might factor all of their invoices via contract factoring while smaller trucking companies are more apt to utilize spot factoring and only factor select invoices.
The following are the freight factoring rates, terms, and qualifications for both small and large trucking companies.
Freight Factoring Rates
The rates charged for freight factoring differ depending on whether you utilize contract factoring or spot factoring. Smaller companies can expect discount rates ranging from 2% to 5% while larger companies can expect 0.5% to 5%. You may also be charged an origination fee when you first set up your account with the factoring company.
The following are the standard rates that a smaller trucking company can expect with freight factoring.
Freight Factoring Rates for Smaller Trucking Companies
Because you are charged either per week or month that the factored invoice is outstanding, the general cost of freight factoring for owner-operators and smaller transport companies depends on how long it takes your customers to repay the invoice. The typical discount rate you’ll pay to the factor company fluctuates from 2% to 5% per month.
The typical rates and fees smaller trucking companies can anticipate for freight factoring are:
- Amount factored: $1,000 to $5 million per funding event
- Average discount rate: Starting at 0.25% per week
- Additional fees: May include a one-time origination fee
Freight Factoring Rates for Larger Trucking Companies
Freight factoring for larger trucking companies has the potential to be less expensive because you are charged a flat fee per invoice — between 0.5% to 5% per invoice — rather a fee each week or month you are in repayment. However, if the factoring company is providing collection, or other, services the cost could be more when you include those additional fees.
The typical rates and fees larger trucking companies can anticipate for freight factoring are:
- Amount factored: $30,000 to $20 million per month
- Average discount rate: 0.5% to 5% per month
- Additional fees: May include one-time origination fee or fees for failing to meet minimum factoring requirements
Freight Factoring Terms
The terms for freight factoring vary based on the value of the invoices factored. Contract factoring requires factoring of all invoices while spot factoring allows you to choose which invoices to factor. The advance rate is the percentage of the invoices’ value that the factoring company will pay out upfront before the invoice is paid.
Some unfamiliar factoring terminology that you may encounter in a freight factoring agreement includes:
- Spot factoring: An agreement that includes spot factoring allows you to choose which of your invoices you want to include in the factoring; with spot factoring, you are not required to factor all of your business invoices
- Contract factoring: An agreement involving contract factoring requires that all of your customer invoices be factored with the factoring company
- Recourse: If your factoring agreement is a recourse agreement, you are agreeing to “buy back” any of your customer invoices that are not paid by your customers; this may also include additional fees charged by the factoring company
- Nonrecourse: With a nonrecourse agreement, you are not responsible for the invoices that your customers fail to pay; due to the increased risk to the factoring company in a nonrecourse agreement, the rates charged by the provider are often higher
The following are the typical terms for freight factoring that smaller trucking companies can expect.
Freight Factoring Terms for Smaller Trucking Companies
Smaller trucking companies often use spot factoring for freight factoring. The advance rate, the percentage of the invoice that the factoring company will pay you upfront for spot factoring typically ranges between 85% to 90%. Repayment is typically between one to 24 weeks and is paid through the collection of the payment from your customer on the invoice factored.
The typically terms that a smaller trucking company can expect for freight factoring are:
- Factoring type: Spot factoring
- Advance rate: 85% to 90%
- Repayment terms: One to 24 weeks
- Recourse or nonrecourse: Recourse
Freight Factoring Terms for Larger Trucking Companies
Larger trucking companies often use contract factoring for freight factoring. The advance rate, the percentage of the invoice that the factoring company will pay you upfront for contract factoring typically ranges between 80% to 95%. Repayment is typically 30 to 90 days and is paid through the collection of the payment from your customer on the invoice factored.
The typically terms that a larger trucking company can expect for freight factoring are:
- Factoring type: Contract factoring, with some spot factoring available
- Advance rate: 90% typically, but can range from 80% to 95%
- Repayment terms: 30, 60, or 90 days
- Recourse or nonrecourse: May be either recourse or non-recourse depending on provider
Freight Factoring Qualifications
Qualifying for freight factoring, sometimes referred to as trucking factoring, is a lot easier than trying to qualify for a traditional business loan. Factoring companies are more interested in your customer’s creditworthiness than your credit because the factoring company is going to collect payment from your customers to repay the advance that you received.
There are several typical qualifications for smaller trucking companies for freight factoring.
Freight Factoring Qualifications for Smaller Companies
If you operate a smaller trucking or transport company that has less than $30,000 in monthly revenue and your business has been operational for three months, have a credit score of at least 530, have creditworthy customers, and current invoices that are due within 90 days, then you can typically qualify for freight factoring.
The basic qualifications for freight factoring for smaller companies are:
- Credit score: 530 or higher (check yours for free)
- Customers: Creditworthy customers; their credit score may be pulled
- Invoices: Outstanding invoices due in the next 90 days
- Time in business: Three or more months of business history
- Annual revenue: $100,000 or higher
Freight Factoring Qualifications for Larger Companies
If you’re a larger trucking company looking to factor $30,000 or more per month, then you could qualify for traditional invoice factoring, which can be a long-term partnership with your factoring company. The basic qualifications for freight factoring for larger companies include having creditworthy customers, outstanding invoices due within 90 days, and two or more years of business operations.
The basic qualifications for freight factoring for larger companies are:
- Customers: Creditworthy customers; their credit score may be pulled
- Invoices: Outstanding invoices due in the next 90 days
- Time in business: Two or more years of business history
- Annual revenue: $600,000 or more
If you’re an owner-operator looking to get funded for your current outstanding invoices or a larger company looking to get paid quicker, then BlueVine is a great option for you. You need to factor a minimum of $5,000 and have at least three months of business operations. If that’s you, then you could get funded for your unpaid invoices in as quickly as one business day.
How Freight Factoring Works
With freight factoring, your invoices due within 90 days are sold to another company, referred to as a factoring company. You receive an initial advance from the factoring company of approximately 80% to 90% of your invoices value upfront. Once your customer pays the invoice, the factoring company pays you the remaining 10% to 20% minus fees.
According to the Freight Facts and Figures report issued by the Bureau of Transportation Statistics, freight moved by trucks accounts for 70% of all the freight moved by U.S. businesses and is expected to account for 76% by 2045. This level of demand provides trucking companies with plenty of opportunities for additional work. However, it’s difficult to take on more work without sufficient cash flow. That’s where freight factoring, which typically has five steps, comes in.
1. You Invoice Your Customer
The freight factoring process begins with you issuing an invoice to your customer for work performed. There must be an outstanding invoice to your customer before you can begin the freight factoring process as the invoice is the basis for the factoring agreement.
2. You Assign Invoices to a Factoring Company
Larger volume factoring, also known as contract factoring, requires you to sell and assign all of your invoices to the factoring company for them to collect. Low volume factoring, or spot factoring, typically works more like a line of credit and allows you to pick and choose which invoices to factor with your factoring company. However, the arrangement may vary based on the provider you are working with.
3. The Factoring Company Pays Your Advance
Once you have selected the invoices that you will factor, the factoring company pays you for a percentage of the value of the invoices. The amount that you are paid depends on the advance rate that you agreed to with your factoring company, which is usually 80% to 90%. The first payment may take a few days as your account gets set up; subsequent payments are typically issued within 24 hours.
4. Your Customer Pays the Freight Factoring Company Directly
Your customer pays off the invoice by paying the trucking factoring company directly. Most often, these payments are sent to a lockbox in your name and made payable to you. However, the factoring company controls both the lockbox and the deposit account. Using contract factoring, the responsibility for collecting customer payment is shifted entirely to the factoring company.
5. Factoring Company Pays You Remaining Balance Less Fees
The factoring company, at this point, will take their fees out of the customer’s payment and forward you the remainder. While this is typically how invoice factoring works for transportation companies, you can see that there are some slight differences based on what your factoring volume is.
If you’re a high-volume freight company, you can learn more by reading our ultimate guide on invoice factoring. If you’re an owner operator looking to do less than $30,000 in factoring per month, then you should read about accounts receivable financing.
Pros & Cons of Freight Factoring
As with anything in life, there are pros and cons to utilizing freight factoring. The benefits of freight factoring include that it’s relatively easy to qualify for, you receive funding quickly, and the amount of funding grows as your business does. The cons of freight factoring are the cost, the potential for additional charges if your customers fail to pay, and the loss of control over accounts receivable.
Pros of Freight Factoring
The primary pros of using freight factoring for your business are:
- Funding is quick: With most freight factoring companies, you can receive funds for factored invoices in as little as one day, which is much faster than most conventional financing
- Qualifying is easy: Because freight factoring relies primarily on the creditworthiness of your customers, the qualification requirements for your business are minimal
- Financing grows with your business: With the amount of the advance determined by the value of the invoices that you factor, the more your business grows, the more financing you can get through freight factoring
Cons of Freight Factoring
The primary cons of using freight factoring for your business are:
- It’s an expensive option: While freight factoring provides you with cash upfront on your unpaid invoices, a percentage of those invoices ― the discount rate ― is retained by the factoring company, reducing the amount that you receive for the work that you have performed; for example, if you have a $10,000 invoice, with a 4% factor rate, after the discount fee has been collected, you will only receive $9,600 for that invoice
- Costs increase if customer doesn’t pay: If you have a recourse factoring agreement, and your customer doesn’t pay the invoice, you may have to buy back the invoice, and you will likely be charged a fee; some factoring companies give you better rates if your customers pay quickly, these rates could increase in the event that your customers are slow to pay
- Customer payments made directly to the factoring company: In many cases, by using freight factoring you are essentially assigning your accounts receivable functions over to the factoring company; this is especially true for contract factoring agreements, where you agree to have all of your invoices included in the factoring; collection of payments is then handled completely by the factoring company, with very little involvement from you
Alternatives Financing Options to Trucking Factoring
If you aren’t certain that freight factoring is the right answer for your trucking company, there are other financing options available to you. There are a variety of small business loans, small business lines of credit, or even fuel financing options that may be beneficial to explore as potential financing options for additional working capital.
There are three alternatives to trucking factoring.
1. Short-term Small Business Loans
If you’re looking to fill a short-term cash flow gap, then you may benefit from getting a short-term loan in place of freight factoring, which would give you the flexibility you need and typically gets funded very quickly. If you repay the loan within three months, the costs could be competitive to freight factoring.
We recommend OnDeck for short-term loans and prime borrowers ― 700 or higher credit scores ― can benefit from rates as low as 9 percent. OnDeck is very quick to approve and fund your loan compared to other financing options. The application is online and requires very little paperwork. You can get approved the same day and funded in as soon as one business day.
2. Small Business Lines of Credit
A small business line of credit is another funding option in place of freight factoring. If you are looking for a financing option that has more lenient qualification requirements than a short term loan, allows for a slightly longer repayment period, and has the flexibility of redrawing the funds, consider a small business line of credit.
We recommend BlueVine for a small business line of credit. You can apply using its online application and receive approval in as quickly as 20 minutes. BlueVine offers a line of credit ranging from $5,000 to $250,000, with interest rates starting at 4.8% If you have a credit score of 600 or more, six months of business operations, and $100,000 in revenue, you can receive funding within 24 hours of applying and receiving approval.
3. Fuel Financing
Many freight factoring companies also have an option to finance your fuel expenses. While this may be a good opportunity if you’re tight on cash, getting a fuel card would be less costly. Larger trucking companies may benefit from using a fleet card to help pay for all of your fuel, potentially at more affordable rates.
According to FreightCenter‘s Van Ness:
“As the price of fuel increases, larger loads are typically avoided if fuel financing is not an option, which can cause slower moving freight throughout the industry. This could hurt transit times and leave many owner-operators without work. Depending on what fuel factoring terms are given, the alternative option of using a fuel card may be more beneficial. The credit limit and factoring terms will determine which option is best for your business.”
Freight Factoring Frequently Asked Questions (FAQs)
A lot of information has been covered in this article about freight factoring, what it is, how it works, the rates and terms you may be eligible for, and where you can apply. If you have any questions about any of the information presented here, you can post them in the FitSmallBusiness forum.
What Does Factoring Mean in Trucking?
Factoring is a financing method in which your invoices are sold to another company, called a factoring company. The factoring company advances you a percentage of the invoice immediately and the remainder when your customer pays the invoice. This gives you access to the invoice’s value as working capital prior to the invoice being paid.
What Is a Freight Factoring Company?
A freight factoring company is a company that purchases invoices from another business at a slightly reduced, or discounted, value. In exchange, the freight factoring company pays the business for a percentage ― the advance rate ― which is typically 85% to 90%, of their invoice up front and pays the remainder when the business’ customer pays off the invoice in full.
What Do Factoring Companies Charge?
Factoring companies charge a fee known as a discount rate on each invoice that is factored. Smaller companies can expect discount rates ranging from 2% to 5% monthly while larger companies can expect 0.5% to 5% monthly. You may also be charged an origination fee when you first set up your account with the factoring company.
The Bottom Line
Freight factoring may be a good option for either high-volume trucking companies or small owner-operators with just one truck. You can use this financing method overcome cash flow gaps or to help you take on additional projects more quickly. The right freight factoring company depends on the size and needs of your business.
If your trucking business has a minimum of $100,000 in annual revenue and has been in business for three months or more, look at BlueVine. Get approved for up to $5 million in financing with rates starting at 0.25% per week. Apply online in as little as 10 minutes and get funded in as little as 24 hours.