The factor advances a percentage of the invoice — commonly in the low-to-mid 90s — takes over collecting from the debtor, and pays the carrier the reserve minus a fee when the invoice is paid. The fee is usually a small percentage of the invoice value.
Factoring solves a cash-flow timing problem: fuel, payroll, and truck payments come due weekly, but freight bills pay slowly. A carrier that would otherwise stall waiting on receivables keeps trucks moving.
The cost is real — the fee is a haircut on every load — and the terms matter: whether it is recourse or non-recourse, whether the whole book must be factored or loads can be chosen, and how the factor treats disputed invoices.
Example
A carrier delivers a load and invoices the broker $2,000 on 35-day terms. Instead of waiting, it factors the invoice: the factor advances $1,900 the next day, collects the $2,000 from the broker 35 days later, and releases the remaining $100 minus a $60 fee. The carrier had its cash in 24 hours for a $60 cost.
Why it matters
Factoring converts slow receivables into working capital, at a per-load cost. Whether it is worth it depends on how tight cash flow is and how the fee compares with the value of not stalling.