Freight factoring is a niche field. But its critical for many long-haul carriers. Freight factoring is a financing tool for many trucking companies or individual owner-operators use to maintain stable cash flow. When a long-haul carrier accepts a load, they will invoice a freight broker for the cost of moving a shipment of goods. Often, it can take several weeks or months for the freight broker to pay the invoice.
A factoring company provides cash to the trucking company to close the gap between when a shipment is completed and the invoice is paid. This acts as a form of insurance against unpaid invoices. What might seem boring and complication to most people is a necessary function of small trucking operators. That’s why many things must be considered when choosing the best freight factoring company.
We gathered a team of independent reviewers to go “undercover.” They contacted five leading factoring providers to identify the best one. Each reviewer was tasked with gathering objective information on a factoring company’s rates, reserve policy, length and flexibility of contract, minimum volumes requirements, extent of non-recourse coverage, and fees.
These identified criteria are what’s most important to carriers. For example, a carrier might need to cancel a factoring contract due to unforeseen circumstances. A contract without fine print that allows for an easy and cost-effective cancellation process is critical for our reviews.
Generally speaking, factoring companies offer two types of coverage – recourse and non-recourse. Non-recourse coverage is when the factoring company assumes the risk of an invoice not being paid. Recourse is the opposite. If a broker does not pay the invoice, the trucking operator has to repay the factoring company. With these considerations, non-recourse is a more popular factoring option. This is the focus of our reviewers.