Freight factoring: what it is and how it works

How factoring a load works

1. The carrier delivers the load and gets a signed bill of lading or proof of delivery.
2. The carrier, who works with a factoring company, sends it the invoice and delivery documents.
3. The factoring company advances part of the invoice value to the carrier.
4. The broker or shipper pays the invoice to the factoring company, usually on its normal payment terms.
5. The factoring company releases the remaining reserve, minus its fee.

Recourse and non-recourse

With recourse factoring, the carrier must buy back an invoice the customer does not pay within an agreed period. With non-recourse factoring, the factoring company carries some of that risk, usually only for specific reasons such as the customer’s insolvency, and the fee tends to reflect that. Non-recourse normally does not cover disputes over the load itself, such as damage, shortage or late delivery. The contract defines exactly which non-payment cases are covered.

Notice of assignment

When a carrier factors with a company, the broker or shipper normally receives a notice of assignment telling it to pay the factoring company instead of the carrier. Paying the carrier directly after such a notice can create a dispute, so brokers keep track of it.

What to compare between factoring offers

This is general information, not financial or legal advice. Read the full contract before signing.

• How the fee is calculated and when it changes, for example with the time the customer takes to pay.
• The advance rate and when the reserve is released.
• Recourse or non-recourse, and which non-payment cases are covered.
• Contract length, minimum volume, notice period and termination terms.
• Whether you must factor all invoices or can choose loads.
• Extra charges, for example for same-day payment or credit checks.

Factoring and GigFreight

GigFreight is a load board and does not offer factoring or payment services. Payment terms are agreed between you and the broker or shipper you book the load with.

Frequently asked questions