When trucking companies begin evaluating factoring programs, they often encounter terminology that is not immediately familiar. Factoring uses specific financial and operational terms to describe how receivables are evaluated, how funding is structured, and how invoices move through the payment process.
Understanding these definitions helps carriers interpret factoring agreements, compare providers, and evaluate different program structures more accurately.
Carriers ready to begin comparing factoring companies can use these definitions alongside the Carrier How to Evaluate Guide [HE], which explains how to conduct a search and interpret results.
Accounts receivable represent money that brokers or shippers owe a carrier for freight that has already been delivered. These invoices become the collateral that factoring companies evaluate when providing funding. The quality, age, and credit profile of a carrier’s accounts receivable directly affect how factoring companies structure and price the program.
When a carrier submits an invoice for factoring, the factoring company advances a portion of the invoice value immediately — typically 85 to 95 percent in freight factoring. The remaining balance is held as a reserve until the broker or shipper pays. Advance rates vary depending on the factoring company, the credit quality of the broker, and the structure of the factoring agreement.
After advancing funds on an invoice, the factoring company retains a percentage of the invoice value as a reserve. Once the invoice is paid, the reserve is released to the carrier after the factoring fee is deducted. The reserve protects the factoring company against potential disputes, short payments, or documentation issues.
Factoring fees are typically calculated as a percentage of the invoice value. The total fee is influenced by how long the invoice remains outstanding before the broker or shipper pays. For a full breakdown of how carrier factoring fees are structured, see the Carrier Factoring Cost Guide [CO].
Recourse factoring is the most common structure in freight carrier programs. The factoring company advances funds against invoices, but the carrier remains responsible if the invoice cannot be collected — due to disputes, documentation issues, or delivery problems. Because the factoring company retains less credit risk, recourse programs typically allow for more flexible credit approval policies and pricing.
Non-recourse programs may protect carriers against credit losses if an approved broker or shipper becomes unable to pay due to insolvency. However, non-recourse protection applies only to credit risk — not to disputes, missing documentation, delivery disagreements, or OS&D claims. Because the factoring company assumes additional risk, non-recourse programs typically operate with stricter credit approval policies.
Factoring companies review the payment history, financial stability, and credit profile of brokers or shippers before approving invoices for funding. This credit evaluation determines whether the broker or shipper qualifies for funding and what credit limits may apply. Understanding how a factoring company approves broker credit helps carriers anticipate which invoices are likely to be funded.
Payment terms determine how long invoices remain outstanding before payment is due. Longer payment terms mean invoices remain in the factoring program longer — which directly influences both the working capital need and the total factoring cost.
When a carrier begins factoring invoices, the factoring company provides a Notice of Assignment that informs the broker or shipper where payments should be directed. This payment instruction becomes part of the billing process — and is a standard, widely accepted part of freight factoring in the transportation industry.
Proof of delivery is the most critical document in the freight factoring process. It verifies the shipment was completed and supports the validity of the invoice submitted for funding. Missing or incomplete POD documentation is one of the most common reasons for delays in the factoring process.
Understanding factoring terminology helps carriers evaluate programs more accurately and ask better questions when speaking with factoring companies.
Carriers ready to compare providers can review the Carrier How to Evaluate Guide [HE] for a full walkthrough of the search and evaluation process.
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