Core Insights - Factoring can provide immediate cash flow for small carriers and owner-operators, allowing them to receive payment within 24 hours instead of waiting 30 to 45 days [1] - However, the contracts signed with factoring companies may contain unfavorable terms that can impact long-term profitability, creditworthiness, and business flexibility [1][4] Factoring Agreement Overview - A factoring agreement is a legally binding contract where a company sells unpaid freight invoices to a factoring company for immediate cash, typically receiving 80% to 95% of the invoice value [3] - Once signed, companies may find it challenging to change or cancel the specific terms of the agreement [4] Recourse vs. Non-Recourse Factoring - Understanding whether a contract is recourse or non-recourse is crucial; recourse factoring holds the company responsible for unpaid invoices, while non-recourse factoring transfers the risk to the factoring company under specific conditions [5][6] - Many companies may misrepresent non-recourse factoring by including clauses that still hold the company accountable for disputed invoices or unapproved brokers [5] Hidden Fees in Factoring Contracts - Common hidden fees in factoring contracts include: - ACH or wire transfer fees, which can be as high as $25 for transferring funds [7] - Invoice processing fees for each handled invoice [7] - Minimum volume fees if the company does not meet a set threshold of loads or revenue [7] - Termination fees for early contract cancellation, potentially amounting to thousands [7] - Reserve hold fees where a portion of funds is withheld for risk mitigation [7]