A Simplified Guide To Common Factoring Terms

Factoring is a great way to keep cash flowing in an industry where brokers take weeks to pay, and at its core, the process is simple: Truckers get paid for their open invoices, then the factoring company collects payment from the shipper or broker who hired that trucker. That factoring business charges a small fee for the advance, while carriers get access to the cash they’ve earned without delay. It’s a win-win, and with a no-contract factoring tool like Bobtail, it couldn’t be easier.

If you’re just getting started, however, the language surrounding this industry may be a bit unclear. Factoring terms can seem vague until you get used to them. This glossary provides a quick introduction to factoring terminology so you can start the conversation on an equal footing with providers.

Looking for a simpler way to factor your trucking invoices? Try the Bobtail app with a free one-month trial.

A

Advance Rate: This is the sum the factoring company pays the carrier for a factored invoice. It’s equal to the total invoice value minus the factoring rate and any reserve funds. Bobtail does not hold any amount in reserve, so when you factor with us, the advance rate will be the invoice value minus the one simple factoring fee, which ranges between 1.99% and 2.99%.

B

Bill of Lading: A bill of lading is a document that lists all the goods shipped on your truck. It’s a legal document that serves as an agreement between the shipper and the carrier. After a delivery, the receiver signs the bill of lading, at which point it serves as proof of delivery. When you factor with Bobtail, you simply upload your bill of lading through the app to get funded.

Buyout: If you switch from one factoring company to another, the new one must purchase all the open invoices from the previous. This is called a buyout. Typically, the factoring companies negotiate the buyout, so the carrier shouldn’t have to worry too much about it.

C

Chargeback: If a shipper or broker refuses payment or goes out of business without paying an open invoice, some factoring companies will ask the carrier to pay back the invoice amount. Also, if there’s a dispute or a late fee attached to the invoice, they may charge the trucking company that amount. This is called a chargeback.

Credit Check: To evaluate the creditworthiness of a potential client, factoring companies may run credit checks. It’s a good idea to complete a credit check for brokers or shippers you haven’t worked with before. Bobtail never charges carriers for credit checks.

D

Debtor: The debtor is the party that pays a shipping invoice. That’s the shipper or broker who hired you for a delivery.

Declined Invoice: Sometimes a broker or shipper fails their credit check. In that case, the factoring company will decline the invoice. They won’t factor the load; it is unfactorable. This is called a declined invoice.

F

Factor: The verb “to factor” refers to the practice of getting funded for open invoices in the trucking industry. As a noun, “factor” means a factoring company.

Factoring: A financial tool in which a third party purchases invoices from trucking companies, collecting on those invoices from the debtor. Factoring gives truckers instant funding to maintain steady cash flow. This is important in the trucking industry because shippers and brokers often operate on net-30 or net-60 terms, meaning they have a month or two to pay their invoices.

Factoring Fee: Also called a “transaction fee,” this is the cost a factoring company charges to advance funds to their clients. Factoring fees are based on factoring rates, a percentage of the total invoice amount. As we mentioned, Bobtail’s factoring fee ranges between 1.99% and 2.99%, based on the size of your business—and this one simple cost is all we charge. See our entries on Setup Fees, Termination Fees, and Transfer Fees to learn about some of the hidden costs other factoring companies may charge; Bobtail does not.

Freight Claim: If a trucker damages or loses products they’re carrying, the shipper or broker may charge them for those items. This charge is called a broker claim, a shipper claim, a freight claim, or just a claim.

I

Invoice Aging Report: This document lists all the unpaid invoices a trucking company has factored. It’s a good idea to run an invoice aging report monthly, or even weekly, to make sure debtors pay on time. That way, you won’t get hit with surprise chargebacks.

Invoice Verification: Before providing funding for a shipping invoice, factoring companies check with the broker or shipper to make sure the carrier delivered the associated load successfully. This process is called invoice verification.

N

Non-Recourse Factoring: In a non-recourse factoring agreement, collections insurance limits the scenarios in which the factor can issue a chargeback to the carrier. This insurance is usually limited to occasions when brokers or shippers go out of business and declare bankruptcy.

R

Rate Confirmation: Also known as load confirmation, this document verifies the agreed-upon pay rate for shipping a single load. It’s an agreement between the shipper or broker and the carrier. Truckers can upload the rate confirmation to the Bobtail app for quick, easy factoring.

Recourse Factoring: This is the opposite of non-recourse factoring. In a recourse factoring agreement, the carrier may be responsible for paying invoices that debtors fail to pay — though factoring companies may have other avenues that protect their clients from chargebacks. Learn more about recourse vs. non-recourse factoring.

Reserve: Some factoring companies hold a fraction of the invoice value as a sort of security deposit. They keep these funds in a separate escrow account and release them back to trucking companies as invoices are paid. This leads to some confusing bookkeeping, so Bobtail simplifies the process by never holding reserves.

S

Same-Day Funding: The whole point of factoring is to get funds to truckers fast. With same-day funding, those payments arrive the very day the trucker uploads a rate confirmation and bill of lading on the Bobtail app. Factoring requests that arrive by 11 a.m. provide same-day funding. Requests that arrive later in the day are filled the next day.

Setup Fees: Some factoring companies charge carriers fees to set up their accounts. These may include administrative costs and a charge to file a lien through the Uniform Commercial Code (UCC), a set of U.S. laws that standardize financial transactions; you may see these listed as “UCC fees.” Bobtail doesn’t charge UCC fees or pass setup costs to our clients; our only charge is the one clear transaction fee, which can be as low as 1.99%.

T

Termination Fees: Many factoring companies lock truckers into restrictive contracts, then charge them a termination fee if they want to take their business elsewhere. Bobtail offers no-contract factoring, providing you the freedom to leave any time — without termination fees.

Transfer Fees: Factoring companies send carriers their money with electronic bank-to-bank transactions through the Automated Clearing House (ACH) network. This network charges a fee for these transfers, and many factors pass that cost onto clients. Not Bobtail — we don’t charge ACH fees or any other type of hidden cost.
Still have questions about factoring terms or practices? Bobtail is here to help. Call us at 410-204-2084, or start factoring today with a free, one-month trial of the Bobtail app.