Freight factoring vs. a line of credit for trucking companies

Trucking has a built-in cash problem. Fuel, insurance, repairs and drivers get paid this week. Brokers and shippers pay in 30 to 60 days, sometimes longer. The two most common fixes are freight factoring and a business line of credit.

How factoring works

You sell your freight invoices to a factoring company. They advance most of the invoice right away, collect from the broker or shipper, then send you the balance minus their fee.

• Approval is based mostly on your customers' credit, not yours. That makes it accessible to newer carriers.
• It grows with you. More loads mean more funding.
• Recourse vs. non-recourse: with recourse, you're on the hook if a customer doesn't pay. Non-recourse shifts some of that risk to the factor, for a higher fee.
• Your customers will know. They're told to pay the factoring company directly.

How a line of credit works

A lender gives you a credit limit you draw on when needed and pay back as invoices come in. You only pay interest on what you use.

• Usually cheaper than factoring for established carriers with solid financials.
• Harder to get. Lenders look at time in business, revenue history and your own credit.
• Customers aren't involved. You keep collecting your own invoices.

Watch for these in factoring contracts

• Long minimum terms and termination fees.
• Monthly volume minimums.
• Extra fees for same-day funding, fuel advances or credit checks.
• Requirements to factor all of your invoices, not just the ones you choose.

Which fits?

Newer carriers and fast-growing fleets often start with factoring because it's easy to get and scales with loads. Once you have steady revenue and a couple of years of history, a line of credit is usually the cheaper long-term tool. Many carriers use equipment financing for trucks and trailers alongside either one.

Your advisor can compare factoring offers and credit lines side by side so you see the real cost per load, not just the headline rate.