Without freight factoring, companies within the transportation industry would be stuck with the old-fashioned cycle of invoicing a client. Many transportation workers waited for weeks to get paid, waited several more days for a payment to clear the bank, and finally had the funds available to pay drivers, creditors, and truck repair and maintenance technicians. In the long wait, any unpaid, overdue bills wracked up late fees and penalties or high credit card interest rates. It wasn’t advantageous.
Freight factoring resolved many of these issues. Instead of paying high interest rates and paying bills with a company credit card, trucking company owners could pay a much smaller freight factoring fee and get paid instantly. Learn how this beneficial financial service started and where the future of freight factoring is headed in 2025.
What Is Freight Factoring?
Freight factoring is a financial service where you sell your unpaid invoices to a factoring company at a discount. The factor takes over invoicing your client and collecting payment, and you get immediate payment minus the freight factoring fee. In essence, the arrangement works like this. We’re using a 2% freight factoring fee, 100% advance, and $10,000 amount due in this example.
- You deliver a load to the loading dock and get the completed bill of lading.
- You send a payment request to the factor with a photo of that bill of lading.
- The factor runs credit checks and approves your payment request.
- You receive $10,000 minus the 2% fee that same day or within a day or two if you miss the daily cut-off time.
- The factor invoices your client and chases the payment if it’s not paid on time.
Every agreement has conditions to follow. One of the most important ones regards what happens if your client doesn’t pay due to a sudden closure or bankruptcy. If you don’t choose a non-recourse arrangement, you are obligated to repay the money you were advanced.
The History of Freight Factoring
That covers what freight factoring is. If you look at the history, it dates way back to Mesopotamia and the textile trade. It became a popular financial option for English merchants in the 15th century. When colonizers headed to the U.S., they knew of the practice and used it to an extent as early as the 17th century. If you think about some of the things the U.S. exported to other countries – cotton, fish, rum, sugar, and tobacco for example –and the lack of technology for completing speedy payments, it’s not hard to imagine why factoring was essential.
It was in the 20th century that it became a popular option for gaining working capital for many industries. It’s continued to advance ever since.
Freight factoring is especially popular because it gives trucking company owners working capital that’s needed to keep trucks fueled and in good working order. It also provides beneficial services like fuel discounts, which increases a trucking company’s revenue by reducing the cost of diesel or gas.
Heightened Automation and Digitalization in the 2020s
Going back to the 18th century, a time when technology and digitalization weren’t even a consideration, you can see how digitalization has rapidly changed the freight factoring industry. Instead of sending paperwork via a courier or mail service, waiting for verification checks via mail or phone, sending an invoice by courier or mail, and waiting on payment, everything can be transmitted electronically. It’s lightning fast and that makes it easy to get paid the same day.
Technology has come a long way and streamlined freight factoring, but there are still advancements being made in 2025. They focus on these four key areas.
- API Integration: It used to be that you had to generate an invoice, fax or email it to the client, and wait for payment to arrive in the mail or get wired to your bank. API connects your invoices with a payment option that can be accessed via the app or email and sends the money you’re owed by your client in seconds.
- App-Based Solutions: Instead of having you, your clients, or your drivers have to email everything, log into an app, upload what’s needed, make payments, check schedules, and access financial data from any location at any time of the day or night.
- Artificial Intelligence: Artificial intelligence (AI) and machine learning (ML) technologies simplify the steps needed to assess risk while processing a payment request. With this automation technology, it can check credit histories, search for even the slightest hint of fraud, and process payment requests in seconds without making mistakes.
- Blockchain Technology: It’s decentralized which improves security and ensures faster payments.
Increased Use of Data Analytics in Managing Risk
The other benefit of AI is that it’s helpful in thorough data analytics processes. Data analytics is valuable for assessing risk and making smart decisions in the freight factoring industry. A credit report may look okay, but AI can do a deep dive into far more data and create a detailed look at a client’s financial health. That lowers the risk of non-payment. Here are three ways that AI can help.
- Advanced Credit Scores: Sometimes a credit score doesn’t offer a full picture. Trucking company owners may have had their scores drop because a client went bankrupt, and that shouldn’t keep them from the lowest freight factoring rates. AI can analyze information about late payments with situations happening at the time and give valuable insight.
- Predictive Analysis: AI can look at payment patterns and use that to determine if a client is likely to pay late or not at all, which lowers the risk of fraudulent activities and the potential for recourse of the payment you received in advance.
- Real-Time Data Monitoring: A credit report may look at the past few years, but AI can look at real-time data and use that to determine risk at that exact moment.
The Value of Freight Factoring for Small Fleets, Large Fleets, and Independent Owner-Operators
Most trucking company owners look at the value of freight factoring when it comes to getting paid immediately and having a steady cash flow. There is more value to a freight factoring arrangement than that, and it doesn’t matter how large or small your trucking company is. Independent owner-operators benefit just as much as a company with a fleet of 15 trucks or more. Additional benefits include:
- Fuel discounts that help you save money each month on gas and diesel.
- Customized freight factoring solutions that get you the most value for the lowest freight factoring fee.
- Free business credit reports that allow you to look at a company’s credit history.
- Load-finding boards that help you find more work.
- Low-interest business lines of credit help cover unaffordable emergency expenses without taking on a loan, but the amount you need to borrow isn’t set in stone.
- Online dashboards provide you with real-time information on payment requests that you’ve made, requests that are approved, and payments that have been completed.
Saint John Capital embraces advancing technology and aims to pay you the same day whenever possible. In addition to powerful Click & Pay API systems and access to invoices that you can upload to your bookkeeping software, we provide real-time load tracking, app-based account creation, and same-day payments if you submit your request by noon EST. Get started with our quick online form or call us to learn more.
