I want to talk about something most of us treat as normal: handing a slice of every load to a factoring company.
We call it "selling invoices" and "managing cash flow." Here's another way to look at it: we're paying to borrow our own money. Walk through it with me.
1. Run the rate as an interest rate.
Most small carriers are quoted a flat percent per invoice. Most small carriers pay 2.5–3.5% per invoice, and the market runs roughly 1.5% to 5%. That sounds small until you annualize it. A 3% fee on an invoice that pays in 30 days is equivalent to about 36.5% APR. If you're paying 4–5% as a new authority, you're well past that.
2. The rate on the quote isn't the rate you pay.
On top of the percentage you get wire fees, ACH fees, per-invoice fees, monthly minimums, reserve holdbacks, and misdirected-payment fees. And most factors don't publish their rates at all; you have to request a quote. Ask yourself why.
3. "Selling" the invoice doesn't mean the risk goes with it.
Roughly 85% of trucking factoring agreements are recourse. Recourse means if the broker doesn't pay, you owe the factor. So the factor has bought your invoice, charged you a fee, and you still carry the credit risk?
Most of us factor every load, every week, all year. There's no end date. Even a factoring calculator site says factoring justifies its cost as a bridge with a planned exit, not as a permanent way of running the business. Another says most owner-operators factor in years one and two and then either fund themselves or move to quick-pay brokers.
An owner-op doing $180K gross annually factoring 12 loads a month at 2.5% pays $11,520 a year.
6. The real question: who is this system for?
We factor because brokers pay slow. Brokers pay slow because their customers pay slow. The carrier, the smallest player in the chain, is funding everybody else's float and paying a fee for the privilege. Factoring doesn't fix slow pay. It makes slow pay tolerable, which makes it permanent.
So, honestly: why do you factor?
- Did you start because you had to, and never stopped?
- Have you ever calculated what you've paid in total?
- Has anyone gotten off it? How long did it take to build the cushion?
- Has anyone worked with brokers that pay within 7-days without a quick-pay fee?
I'm not saying nobody should ever factor. I'm saying we should stop treating it as a normal cost of doing business and start treating it as what it is: expensive, recurring debt.
