Short answer
Freight factoring is when a carrier or broker sells its unpaid freight invoices to a factoring company for cash now. The factor advances most of the invoice amount, collects from the broker or shipper, then pays the remainder minus its fee. It trades a percentage of revenue for getting paid now instead of on the customer’s payment terms.
How freight factoring works
- The carrier delivers the load and gets a signed POD.
- It sends the factor the invoice, the rate confirmation, the BOL, and the POD.
- The factor checks the paperwork and the debtor’s credit, then advances a share of the invoice.
- The factor sends the broker or shipper a notice of assignment telling it to pay the factor.
- When the debtor pays, the factor releases the remaining balance, minus its fee.
Recourse vs non-recourse factoring
| Recourse | Non-recourse | |
|---|---|---|
| If the debtor doesn’t pay | The carrier buys back the invoice or has it deducted | The factor absorbs the loss for covered reasons |
| What’s usually covered | Nothing, the carrier keeps the credit risk | Often limited to debtor insolvency, so read the definition |
| Typical fee level | Lower | Higher |
| Watch for | Buyback deadlines | Narrow coverage, monthly minimums, termination fees |
Terms vary by factoring company. Read the contract before signing.
Why it matters to brokers
Brokers deal with factoring every week, because many small carriers factor their loads. The key document is the notice of assignment (NOA). Under UCC 9-406(a), once an account debtor receives notice of an assignment, it can discharge the debt by paying the assignee and can’t discharge it by paying the original creditor.
In plain terms: after a broker gets a valid NOA, paying the carrier directly doesn’t cancel what the broker owes the factor. The broker can end up paying the same load twice.
Some brokers also factor their own customer invoices to pay carriers before shippers pay, and some offer carriers a quick pay option as an alternative to factoring.
Example: one factored invoice
Example, with illustrative terms. These aren’t market averages. A carrier invoices a broker $2,000 for a load. Its factor advances 90% and charges a 3% fee.
- Day 1: the factor advances $1,800.
- Day 30: the broker pays the factor $2,000.
- The factor releases $140, which is $2,000 minus the $1,800 advance and a $60 fee.
- The carrier receives $1,940 total and pays $60 to be paid a month early.
Common factoring mistakes
- Brokers: paying the carrier directly after an NOA arrived, then paying the factor again.
- Brokers: accepting a new NOA or a remittance change by email without calling the factor to confirm it. Fake remittance changes are a known fraud tactic.
- Carriers: signing a contract with volume minimums or long termination notice without reading it.
- Carriers: switching factors without getting a release letter from the old one, which leaves brokers unsure who to pay.
- Both: missing a signed POD or rate con, which holds up the advance.
Keep the NOA with the carrier’s carrier packet so everyone paying carriers can see it.
How FreightVero handles it
Factors pay against paperwork, and in the FreightVero broker TMS that paperwork lives on the load. Signed rate cons, BOLs, freight photos, and PODs are stored there, a load can’t reach Delivered without a POD and the signer’s full name, and the billing queue checks each customer’s paperwork rules. Those parts are live. Carrier pay and invoice sending aren’t built yet.