What is Freight Factoring?

A Carrier, A.K.A. a Trucking Company, uses a Freight Factoring Company to speed up the way they get paid for the Loads they run. Let's say your picking up a load in Atlanta, GA and you're running that load to Birmingham, AL and a Broker gives you the load for $1,000. Well, when the Carrier delivers that load to the receiver in Birmingham, that Broker DOES NOT pay the Carrier the day the load delivers. Instead, the Broker pays the Carrier 30 days after the delivery. This is called Net 30-Day Payment Terms, meaning the Broker will pay the Carrier 30 days after the load is delivered and the job is done. This way, the Broker can use that 30 days to get paid by their Customer, say Coca-Cola, after the delivery. Then once the Broker is paid by Coca-Cola they will then payout to the Carrier on the 30th day.

That explains the process that the Broker is dealing with, but let's look at this 30-day delay from the Carriers’ perspective. This delay means that the Carrier will have to wait until 1 whole month after the delivery to get paid for hauling the load. That is too long to wait to get paid, so a Carrier may sign up with a Freight Factoring Company to speed up their payment method for the loads (jobs) they deliver. So, looking back at the previous example, let's say your picking up a load in Atlanta, GA and run that load to Birmingham, AL and the Broker gives you the load for $1,000. When the Carrier delivers that load to the receiver in Birmingham, AL they immediately collect all their paperwork... the Rate Confirmation, the Bill of Lading (BOL), and the Proof of Delivery (POD). The Carrier takes pictures of each piece of paper and emails those pictures over to their Freight Factoring Company and that Factoring Company then pays the Carrier for the load in as little as 5 minutes. This way the Carrier doesn't have to wait 30 days to get paid and the Freight Factoring Company will do the waiting.

The Freight Factoring Company isn't doing this for free. They charge a fee for this service. Let's say you sign up to use this Factoring Service at a Factoring Rate of 3%. The load was $1,000 from the Broker and the Freight Factor buys the Carrier's completed paperwork, the invoice, for 3%. The Carrier is gets a deposit of $970 the day the load is delivered. The Freight Factor makes $30 bucks for this service. Again, their service is waiting 30 days to collect payment from the Broker so the Carrier doesn't have to wait and can get immediate cash to pay their drivers, purchase fuel, pay insurance, buy groceries, etc. The $30 cost for not waiting 30 days averages out at $1 a day. That's pretty cheap.

That's how a Freight Factoring works. Moreover, you need to understand that there are Full-Service Freight Factoring Companies and Non-Full Service. A Full-Service Freight Factor is going to wait the 30 days, but they will also take care of any billing, invoicing and collections that is also needed. If you signup with a Non-Full Service Freight Factor, you'll have to personally make follow-up calls on every load. You'll have to do your own collections on loads that need detention added, lumper fees, TONU's, driver assist, layovers, etc. You'll have to personally track down those Brokers who owe you extra money for those additional costs that you need to be paid for. You have to collect those papers to send to your Factoring Company. So, for this added Full-Service experience the Freight Factor will probably charge you more than 3%... maybe more like 4%.

Again, these are good things to know when you're looking to signup with a Freight Factoring Company.