This is probably the most valuable point to understand. Just because you have a factoring arrangement in place, the factor is not obligated to buy all of your invoices. Let me repeat, a factor is not obligated to purchase all of your freight invoices. No matter how good the rest of the arrangement appears, this one major part of your agreement will save you the most aggravation, and possibly your business.

What you want is a non-recourse factor. That means if your factor approves the credit of a broker/shipper, then they accept the credit risk and will agree to purchase the invoice from that broker/shipper; up to the amount of the advance. So if they advance 95%, then they take a 95% risk, and you a 5% risk as opposed to never being paid for that load. Does not that kind of arrangement put your mind at ease when accepting a load? Premier transportation factors offer this kind of arrangement. Make sure it is in your contract!

Non-recourse factors usually keep an updated online list of brokers that they have already approved and agree to accept their invoices. You will have access to this list. In addition, if a broker is not on the list, a simple phone call will let you know if a broker’s load will be guaranteed.

Competitive Freight Bill Factoring Fee Rate

The factoring fee rate is probably what you would normally make your final decision on when choosing a Factor. It certainly is one of the biggest “hooks” to get you to choose the one you are talking to. But be careful! It may not be what you think or other program features may make it irrelevant.

Some Factors charge a percentage fee per every 10 to 15 days. Others will charge a minimum amount which will cover the first 30 days; then charge a rate for each additional 10 or 15 days. Some factoring financial institutions will have a maximum fee that you will be charged, no matter how long it takes for them to receive payment on the purchased invoice. Others though will wait only a certain period and then expect you to send the advance back to them. These differences are part of the reason you need to look at the whole program.

Some Factors may tell you that you can factor with them for as low as a 1% factoring fee. But what exactly does that 1% get you? How many days does that 1% cover? Will they buy all of your invoices, or will they cherry pick which invoices they will buy? Will they guarantee the credit of your brokers/shippers? What else is involved in their program? 

Another Factor may quote you 2 1/2% for 30 days, then 1% for each additional 10 days with a 5% maximum charge. Is that a better rate structure than the one described above? Maybe. Depends on the other features of their program.

So, don’t only hear the factoring fee rate and make your decision just on that. Just because one restaurant is cheaper than another doesn’t makes their food and service better, or even the same. 

One more thing about rate fees; as your company grows, you should be able to negotiate a cheaper rate. A large consideration that determines your rate is the amount you are invoicing each month. So once you have set up a factoring arrangement, find out at what level of invoicing you will qualify for a cheaper rate. Check every year.