Freight Factoring

What is Freight Factoring?

Freight factoring is a financing method where a carrier or logistics company sells its unpaid invoices to a factoring company in exchange for immediate cash at a discount. The factor advances 90 to 98% of the invoice value and collects the full amount from the client when payment is due.

Factoring is common in logistics because carriers need cash for fuel, maintenance, and driver payroll but clients pay on Net 30 to Net 60 terms. A carrier with $200K in monthly revenue and 45-day average collection might use factoring to access cash within days rather than waiting six weeks.

The cost is the discount rate, typically 2 to 5% of invoice value. On a $10K invoice at 3% factoring cost, the carrier receives $9,700 immediately instead of $10K in 45 days. For carriers operating on thin margins, factoring cost must be weighed against the cost of alternative financing. See the logistics finance guide.

Why it matters

Factoring converts receivables to cash but reduces margins. Logistics operators should model factoring cost against credit line interest and collection improvement efforts to choose the cheapest bridge financing.

Formula

Factoring Cost = Invoice Amount × Discount Rate

Example

How RunwayCal helps

Common mistakes

• 1Using factoring as a permanent solution rather than a bridge
• 2Not comparing factoring cost to alternative financing rates
• 3Factoring invoices from reliable-paying clients unnecessarily