Trucking is paid load by load, but it spends continuously. Fuel is bought at the pump, drivers are paid on a schedule, insurance and maintenance arrive whether or not anything moved that week. Between the delivery and the payment sits an invoice, and that invoice is where the cash is stuck.
How a load gets paid
A broker or shipper issues a rate confirmation that sets the rate and the terms. The carrier moves the freight and obtains a signed bill of lading at delivery. The invoice is then raised and sent with that paperwork. What follows is the customer's payment process, and it runs on the customer's calendar rather than the carrier's.
In practice, the delay comes from three places: the time it takes the office to assemble the paperwork, the customer's own approval process, and the gap between approval and the payment run. A carrier can control the first. It can influence the second by being precise. It cannot control the third.
Who the customer actually is
The party that owes the money is not always the party whose name is on the trailer. A shipper may contract directly, a broker may contract as principal, or a freight forwarder may arrange the move for an unnamed customer. Each carries a different credit profile.
That distinction matters when an invoice is sold, because a funding provider assesses whoever is legally obliged to pay. A broker with a thin balance sheet and a habit of settling late is a different proposition from a national retailer paying its own freight bills.
Why receivables build up
- Each load produces its own invoice, so a busy week produces a stack of them.
- Paperwork arrives after the fact, by email, photograph or mail from the driver.
- Accessorials such as detention are argued over separately from the base rate.
- Brokers often settle only after their own customer has paid them.
- Repairs, tires and insurance fall due on fixed dates regardless of cash on hand.
How factoring is used
The carrier sells the load invoice once delivery is confirmed. Under a notification arrangement the broker is told to pay the provider, and the provider handles reminders from there. When the broker settles, the reserve is released less the provider's fee.
Some carriers sell every load, treating the arrangement as their accounts receivable function. Others sell selected invoices, usually those owed by slower brokers. Which approach is available depends on the provider and on how the arrangement is written.
Sector cautions
Three issues deserve attention. Paperwork discipline is the first: a delivery receipt marked with damage or shortage gives the broker a reason to deduct, and a deduction turns a clean invoice into a dispute. The second is identity, since brokering fraud makes some counterparties harder to verify than others. The third is cross border work, where currency, customs and the customer's jurisdiction all affect whether an invoice can be bought.
Margins also deserve an honest look. A factoring fee is charged against the invoice, while profit on a load is the difference between the rate and the cost of running it. Work the arithmetic on your own rates before committing to an arrangement.
Questions to ask a provider
- Do you require notice of assignment to each broker, and how is it delivered?
- Which documents do you need per load?
- Are accessorials and detention included in what you buy?
- Do you buy cross border invoices, and in which currency?
- Is the arrangement recourse or non-recourse?
Related guides
The mechanics of the arrangement are set out in freight factoring and recourse and non-recourse factoring. Provincial context sits in the Alberta, Manitoba and Ontario guides. For the process itself, read how invoice factoring works.