I work for a freight factoring company, and I always tell carriers they need to be aware of how a factoring company operates before signing up with one. Understanding how they do business is essential, because that company is going to be in charge of your cash flow — the income and revenue being deposited into your bank account. The freight factoring company you choose needs to be viewed as your business partner. Here's my list of essential questions to ask before you sign up, and what to weigh when comparing factoring companies against one another.
1. What tools does the factoring company use for credit checks to verify approved brokers? Before you call a broker about a load on DAT, you should check their credit score first. If the factor's credit-check tool is slow or unsophisticated, you'll miss out on good loads because you can't verify a broker fast enough — other carriers with better tools will beat you to it.
2. Ask about their customer service. Do you get one dedicated Account Manager, or do you need $40,000+ in monthly invoice volume to earn one? (Most carriers average around $10,000 monthly.) Ask if someone is on call after hours, or if you'd be routed to an outsourced call center.
3. Can they do same-day deposits, and what's their paperwork cutoff time? This matters when you need a fuel advance or need to pay a driver on a Friday. I used to work for a freight factor with a 3:30 PM EST cutoff for same-day deposits. Some factors only deposit every two days, or even just once a week — a long time to wait on your money.
4. Where are they located? Are they in your time zone? This ties into cutoff times — a factor in your same time zone (or state) makes day-to-day communication and same-day deposits much easier to manage.
5. Do they have an online portal? Not a dealbreaker either way, but ask whether you'll get a login to upload your Rate Cons, BOLs, and PODs yourself, or whether you just email everything over. Ask for a tutorial on how the portal works before signing up.
6. Do they offer a fuel card discount? Good question, but it should never be the deciding factor. Some fuel card companies bait-and-switch you into a bad factoring program without telling you — get the fuel card second, after you've already signed with the factor you actually want. From working with over 500 carriers, Trans Connect Services (TCS) got the best feedback for savings at the pump for owner-operators. After that, WEX is solid and offers security features so drivers can't purchase things you don't want them to. Third, an American Express cash-back card rounds it out nicely.
7. Factoring rates. I've seen rates range from 1% to 8%. Get the cheapest one and you'll get cheap service — you'll be pulling your hair out trying to get someone on the phone about your deposits. If they offer a stair-step program (dropping your rate as your volume grows), hang up — it's a trick more often than a benefit. Find a factor with a fixed rate, and if you're doing enough volume, they'll lower it if you ask politely. Also ask if they use the U.S. Prime Rate — since that's tied to the stock market and only trending upward, I wouldn't want my factoring cost floating with it.
8. Do they require original paperwork? Most factors are fine with photos of your Rate Con, BOL, and POD emailed over. Some require snail-mailed originals, which can take 5-7 days and risks getting lost. I'd avoid those.
9. Do they hold a reserve? Some factors pay you 90% on delivery day and hold the remaining 10% for 30 days. On a $1,000 load at 3.25%, a non-reserve contract pays you $967.50 same day, done. A reserve contract pays $870.75 same day, with the remaining $96.75 held for 30 days. That adds up — on $15,000 in monthly loads, that's about $1,500 you're not getting right away. I'd recommend avoiding a factor that uses a reserve.
Overall, I hope you've learned a thing or two. These are nine outstanding questions to ask a freight factor before you sign up with them.