Factoring / Funding
Contract Factoring in trucking
Plain-English explanation
Contract factoring is a factoring arrangement where the carrier commits to submitting a minimum volume of freight invoices to the factoring company over a defined contract period — typically 12-24 months. In exchange for this volume commitment, the factor offers a lower per-invoice fee rate than they would charge for occasional one-off invoice purchases. The economics work both ways: the carrier pays a lower factoring rate (often 2-3% of the invoice instead of 3-5% for non-contract spot factoring) and gets consistent cash flow management; the factor gets predictable invoice volume and a longer-term customer relationship that justifies their processing infrastructure investment. Contract factoring typically includes: - A defined contract term (12, 18, or 24 months) - A monthly minimum volume commitment (minimum invoice dollars or number of loads) - An early termination fee (often 3-6 months of average monthly fees) if the carrier exits the contract early - A UCC filing on the carrier's receivables for the contract period For carriers who consistently use factoring as their primary cash flow tool, contract factoring is the economical choice. The lower rate on every invoice adds up significantly over a year of operations.
Factoring terms belong next to the invoice, POD, broker approval, reserve detail, and factoring agreement. A small wording difference can change the funding timeline.
Why it matters in trucking
The contract term and termination fee are the most important elements to understand before signing a contract factoring agreement. A carrier who enters a 24-month contract and then receives operating authority, grows enough to self-fund, or finds a better factor will face termination fees to exit. Understanding the total cost of the commitment — not just the per-invoice rate — is the right evaluation framework.
The business risk is usually hidden in timing: when the factor advances money, what happens if the debtor does not pay, and which documents must match.
Example in real use
A carrier factors $80,000 per month in freight invoices. Their current non-contract factoring rate is 3.5%. A factor offers a contract factoring rate of 2.2% for a 24-month commitment with a $15,000 early termination fee if exited in the first 18 months. Monthly savings: $80,000 × (3.5% - 2.2%) = $1,040/month. Over 24 months: $24,960 in savings. The termination fee of $15,000 in the early period is a meaningful constraint, but the rate savings over the full term are larger if the carrier stays.
Common mistakes or confusion
- Focusing only on the factoring rate without reading the contract term, minimum volume requirements, and early termination fee.
- Not comparing the total cost of contract factoring (including minimum monthly fees in slow periods) against the alternative of borrowing from a line of credit or waiting on payments.
- Signing a contract factoring agreement without understanding the NOA (Notice of Assignment) requirement — all customers must be notified to pay the factor; this is a business process change that affects all broker relationships.
Related terms
Commonly confused with
Related guides
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Sources and last updated
Factoring definitions describe general industry terms and contract structures. Specific rights and obligations depend on the factoring agreement in effect. See the sources page.
Last updated: 2026-05-08