What is factoring?
Factoring is selling freight invoices to a third party at a discount in order to be paid within a day or two instead of waiting thirty to sixty days. The factoring company then collects from the broker.
The carrier hands over the invoice and its supporting paperwork and receives most of the value immediately, minus a fee that is typically a small percentage.
Recourse factoring leaves the carrier liable if the broker never pays; non-recourse shifts that risk to the factor and costs more.
What it means on a dispatch desk
Factoring is expensive money that is frequently worth it, because a truck that cannot buy fuel earns nothing at all. The number that decides it is not the percentage fee, it is what a week of waiting costs in loads not run. Where it turns bad is a carrier factoring everything out of habit after the cash-flow problem it was solving has gone.
Related terms
- Quick payQuick pay is a broker's own offer to pay a carrier faster than the standard terms, in exchange for a percentage discount on the invoice. It is an alternative to factoring, arranged directly with the broker.
- Proof of deliveryProof of delivery is the signed document confirming the receiver took the freight, usually the delivery copy of the bill of lading. It is what an invoice must be supported by before anyone pays it.
- Cost per mileCost per mile is a carrier's total operating cost divided by total miles driven, including empty ones. It is the number that decides whether a given rate is profitable.
- Dispatch feeA dispatch fee is what a dispatch service charges a carrier for finding and booking loads, usually a percentage of the linehaul or a flat weekly amount per truck.
Knowing the term is the easy half
Knowing which carriers are worth calling this morning is the hard half.
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