Choosing a factoring company is a big decision. The right partner keeps your cash flowing, handles collections, and makes your life easier. The wrong one buries you in fees, locks you into a bad contract, and becomes a bigger headache than the cash flow problem you were trying to solve.
Here's what to look for — and what to watch out for — when evaluating freight factoring companies.
1. Understand the Rate Structure
Every factoring company charges a percentage of each invoice as their fee. But the headline rate isn't the whole story. Ask these questions:
- What's the base rate? Typical rates range from 1.5% to 5%. Lower is better, obviously, but make sure there aren't hidden fees that make a "low" rate actually more expensive.
- Is it a flat rate or tiered? Some companies charge a flat percentage regardless of how long it takes the broker to pay. Others use tiered rates that increase the longer the invoice is outstanding. A flat rate is simpler and more predictable.
- Are there additional fees? Watch for application fees, wire transfer fees, invoice processing fees, ACH fees, monthly minimums, and termination fees. They add up fast.
A factoring company with a 2% rate and no hidden fees will almost always cost you less than one advertising 1.5% with a dozen surcharges.
2. Reserve Accounts — Do They Hold Your Money?
Many factoring companies hold back a portion of each payment (typically 5-10%) in a "reserve account." They release this money later — sometimes after the broker pays, sometimes on a schedule.
The problem? That's your money sitting in their account, not yours. If they hold 10% of a $3,000 invoice, that's $300 you can't use.
What to look for: A factoring company with $0 reserve. Not all offer this, but the good ones do. If a company insists on holding reserves, ask when and how they're released.
3. Recourse vs. Non-Recourse
This is one of the most important distinctions in factoring:
- Recourse factoring: If the broker doesn't pay the invoice, you have to pay the factoring company back. You're still on the hook for bad debt.
- Non-recourse factoring: If the broker doesn't pay, the factoring company absorbs the loss. Your advance is safe.
Non-recourse is clearly better for you. It means you're protected if a broker goes bankrupt, refuses to pay, or disappears. Not every factoring company offers true non-recourse — some have fine print that limits what "non-recourse" actually covers. Read the details carefully.
4. Contract Terms — Can You Leave?
Some factoring companies lock you into long-term contracts — 6 months, 12 months, even longer. If you want to leave, you might face expensive termination fees.
What to look for:
- Month-to-month agreements or no long-term commitment
- Low or no termination fees
- Reasonable notice periods (30 days, not 90)
A factoring company confident in its service doesn't need to lock you in. If they want a 12-month contract with big early termination fees, ask yourself why.
5. Speed of Payment
The whole point of factoring is getting paid fast. But "fast" means different things to different companies.
- Same-day: You submit paperwork in the morning, money is in your account that afternoon. This is the gold standard.
- Next-day: You get paid the next business day. Fine, but not ideal if you need fuel money today.
- 2-3 days: At this point, factoring is starting to lose its advantage.
Ask specifically: "If I submit my paperwork at 10 AM, when does the money hit my account?" Get a real answer, not a vague "within 24-48 hours."
6. Volume Requirements
Some factoring companies require you to factor a minimum number of invoices per month. If you don't hit the minimum, they charge a fee.
This is a problem if your volume fluctuates (as it does for most truckers). You shouldn't be penalized for having a slow month.
What to look for: No minimum volume requirements. Factor when you want to, skip it when you don't.
7. Customer Service
This matters more than most people think. When you have a question about a payment, need to check on an invoice, or run into an issue at 7 AM before the broker's office opens — can you reach someone?
Signs of good service:
- You talk to a dedicated account manager who knows your business
- Calls are answered by humans, not automated systems
- Issues get resolved in hours, not days
- The company communicates proactively (alerts on payment status, etc.)
8. Fuel Advances
Some factoring companies offer fuel advances — money you receive before completing delivery to cover fuel costs for the load. This is especially valuable for owner-operators who might not have the cash to fuel up for a long haul.
If fuel advances are important to you, make sure the factoring company offers them and understand the terms (amount available, any extra fees, how quickly you get the advance).
Red Flags to Watch For
- ❌ Rates that seem too good to be true (they're hiding fees elsewhere)
- ❌ Long-term contracts with expensive termination clauses
- ❌ High reserve holdbacks (10%+)
- ❌ Vague answers about fees or payment timing
- ❌ Pressure to sign immediately ("this rate expires today!")
- ❌ Can't reach a human when you call
- ❌ Lots of negative reviews about slow payments or hidden charges
Questions to Ask Before Signing
- What is your factoring rate, and is it flat or tiered?
- Are there any fees beyond the factoring rate? (List them all.)
- Do you hold reserves? How much? When are they released?
- Is the factoring recourse or non-recourse?
- What's the contract length? What if I want to leave early?
- How fast do you pay — same day?
- Are there volume minimums?
- Do you offer fuel advances?
- Who is my point of contact? Can I reach them by phone?
Why Truckers Choose CHC Factoring
We built CHC Factoring to be the kind of factoring company we'd want to work with: transparent rates, no reserves, no long contracts, non-recourse protection, and same-day payment. We answer our phone, we treat truckers fairly, and we earn your business every day.
Want to see how we compare? Get a free quote — no obligation, no pressure.