A team of trucking industry experts
What Is Factoring for Owner-Operators?
Factoring for owner-operators is the process of selling unpaid trucking invoices to a third-party invoice factoring company in exchange for an immediate advance against the value of each invoice.
Also known as “freight factoring,” this alternative financing option is commonly used by carriers who need to improve their cash flow and working capital.
How Does Owner-Operator Factoring Work?
Owner-operator factoring, or freight factoring, is actually a relatively straightforward process. First, you’ll find a freight factoring company and sign a factoring agreement. Once that happens, you’ll be ready to begin the process. Here’s how it works:
- Book a load.
- Complete the haul.
- Send the necessary documentation to the factoring company. These documents will include the invoice for factoring, rate confirmation, bill of lading (BOL), and proof of delivery (POD).
- Once the load is processed, your factoring company will then advance up to 100% of the invoice value to your business, minus the factoring fees.
- Your broker or shipper submits payment to the factoring company (with timing dependent on your payment terms).
- When the factoring company receives payment from your debtor (aka the shipper or broker), the money will be applied to the outstanding invoices that you factored.
Benefits of Factoring for Owner-Operators
Easy (and Fast) Approval
Low credit borrowers can still get funding.
Get Paid Faster Than Ever
Get same day funding and spend less time waiting.
Grow Your Trucking Business
Book more loads, expand your fleet, and grow your company.
Get Back Office Support
Our team will credit check your customers, invoice your debtors, and collect invoice payments.
Boost Working Capital
Increase cash flow with a funding solution that grows with you.
Why Work with altLINE?
Call Us Today
205-590-9471
Get a Free Quote
“The thing I like the most is that you credit check our potential clients before we start doing real business with them. We absolutely love that you’ve helped us figure which businesses we can do a lot of business with and which businesses to limit business with.”
-Krissy Wellman, CEO
Owner-Operator Factoring FAQs
Still have questions about how factoring for owner-operators works? Check out some of the common FAQs below:
Can owner-operators qualify for factoring with bad credit?
Yes, owner-operators can qualify for factoring with bad credit. Because freight factoring companies are more concerned about your customers’ credit than your own, they’ll simply run a credit check for each broker or shipper whose invoice you plan to factor, ensuring they have good payment habits. This makes freight factoring a fantastic alternative if you’re a carrier who can’t yet qualify for a more typical business loan due to bad credit.
Can first-time owner-operators qualify for factoring?
Yes, first-time owner-operators can qualify for freight factoring. Eligibility for factoring is more lenient than traditional lending solutions, which means even new carriers who might not have sufficient revenue or credit can still qualify.
How do owner-operator factoring fees and rates work?
Owner-operator factoring fees and rates are determined based on elements such as monthly funding volume, creditworthiness of the borrower’s customers, and the borrower’s own credit. The fees are determined at the beginning of a partnership, prior to signing a factoring agreement. For freight factoring in particular, factoring fees tend to range from 0.80%-3.50%, though most fall within the 2.0-3.0% range.
How is Quick Pay different than factoring?
While both Quick Pay and factoring can accelerate cash flow for owner-operators, it’s important to recognize that Quick Pay and freight factoring are fairly different.
Quick Pay involves brokers sending payments more quickly in exchange for a fee. This usually takes anywhere from a couple days to one week and is a popular payment option in the transportation industry. This can be compared to factoring, in which the carrier sells their unpaid invoices at a discounted rate to a factoring company in exchange for a cash advance.
| Quick Pay | Factoring |
|---|---|
| Brokers only offer Quick Pay for their own loads | Freight factoring companies can be utilized for invoices from any broker or carrier |
| Funds typically made available within 2 – 7 days | Funds typically made available within 24 – 36 hours |
| Carrier will need to establish Quick Pay for each broker they work with since brokers only offer Quick Pay for their own loads | Carrier will work with one freight factoring company for all their factoring needs |
| Owner-operators must still oversee invoice collection and AR management | Factoring company assumes invoice collection responsibilities, and some will even create the invoice for the carrier |
How do I choose a freight factoring company?
There are so many factoring companies out there that it may be difficult to choose between them. Below are some tips to remember during your search:
- Identify Bank Factoring Companies (Rather Than Independent Factoring Companies): One aspect of factoring companies that first-time business owners might not be aware of is that there are two types of factors: bank factors and independent factors. Bank factoring companies are, to no surprise, backed by a bank. This means they are usually FDIC-insured and must abide by state and federal regulations. Independent factoring companies are significantly less regulated. They also might have to use third-party funds to afford factoring your invoices.
- Target Experienced Factoring Companies: Experienced factoring companies for owner-operators have seen it all. If there’s a slip-up during the factoring process, a company with experience in the factoring industry is more likely to catch it and properly handle the situation. Additionally, companies with decades of experience serving customers, like altLINE, are more likely to provide a premier customer experience, reducing your stress while factoring.
- Ensure They Have Industry Expertise: Make sure you’re explicitly searching for factoring companies that have experience with freight factoring. Some invoice factoring companies don’t offer factoring for owner-operators. As a carrier, you know that trucking can be a complicated industry. Unlike factoring for other industries, factoring for owner-operators involves more than just the invoice itself; it involves documents such as rate sheets and BOLs, too. Confirm with the factoring company you’re communicating with that they have knowledge of the trucking industry before signing an agreement.
- Compare Terms, Fees, and Rates: No factoring company is the same. While their processes may be similar across the board, trucking factoring terms, fees, and funding limits will differ by company. That’s why it’s so crucial to look into multiple factoring companies, get representatives on the phone, and obtain all the information you need to weigh your options sufficiently. Also be aware that some factoring companies will try to hide additional fees in the contract, so be sure to read the agreement thoroughly before signing.
See Why We’re a Top Rated Provider
More Resources for Owner-Operators
A Guide to Owner-Operator Expenses
This guide provides a comprehensive overview of owner-operator expenses, also offering additional funding tips to help you effectively manage your budget.
Tax Deductions for Owner-Operators
In this article, we’ll dive deep into everything you need to know about owner-operator tax deductions so you can better manage your business budget.
