Glossary

Freight factoring

Freight factoring is a financing arrangement common among small carriers. Instead of waiting weeks for a broker or shipper to pay an invoice, the carrier sells that invoice to a factoring company at a discount and gets most of the money right away. The factor then collects the full amount from the broker when the invoice comes due.

Who gets paid, and where

Factoring changes the payment path. Once an invoice is factored, the broker owes the money to the factor, not to the carrier. That instruction reaches the broker through a notice of assignment, a legal document directing payment to the factor. Paying the carrier directly after a valid notice of assignment can leave the broker owing the amount twice.

Where it intersects with fraud

Payment redirection is a fraud vector, so factoring paperwork is a place to be careful. A fraudulent request to change remittance details, or a forged release from a factor, is a way to divert a legitimate carrier's money. The federal record does not track factoring relationships, but it does confirm which legal entity a USDOT number belongs to, which is the anchor for confirming who you are actually paying. Factoring itself is routine and legitimate; the caution is around changes to where money is sent.

A concrete case

A one-truck carrier delivers a load on Friday and needs cash before the broker's 30-day terms come due. It sends the invoice to its factor, which advances most of the amount that day and later collects the full sum from the broker. The broker's obligation now runs to the factor, communicated by a notice of assignment on file. If the broker overlooks that and pays the carrier directly, the factor can still collect, and the broker is out the money twice. Factoring itself is ordinary and widespread; the care is in honoring the payment instruction on record and confirming any change to it before acting on it.

Related terms