Freight factoring is a solid way to build a strong cash flow and ensure you’re paid on time for the hard work you and your drivers do. However, it’s also a partnership where you cannot let the management of your business slide.
Even when it’s busy, you need to make sure that your trucking company follows state and federal laws and regulatory acts. One simple violation can destroy your factoring relationship.
Freight Factoring Is More Than a Service
It may seem that freight factoring is a service. While it technically is, there’s more to it than that. With freight factoring, you sell your unpaid invoices to a third party for a discount. In exchange for that discount, you get paid immediately.
In most cases, you have the money you’re owed within two banking days. However, you may be paid the same day. This makes it easy to keep up with your expenses.
That discount is really a freight factoring fee. You enter a partnership where you agree to keep up your end of the agreement, and the freight factoring company must keep up its end. This agreement, as laid out in a contract, requires you to do several things. If you don’t, you risk a lot, including losing your partnership with the freight factoring company.
How Compliance Violations Affect Your Factoring Relationship
Your factoring relationship often has the following rules in place for both you and the freight factoring company. Typically, you’ll find some or all of the following laid out in the contract.
The Freight Factoring Company:
- Absorb the loss if the client doesn’t pay for a covered reason, and there’s a non-recourse arrangement.
- Handle collections of the payment from the client.
- Pay the advance within the agreed-upon time limit.
- Provide accurate, clear accounting for the trucking company to access.
- Verify the customer’s creditworthiness.
The Carrier (You):
- Notify your clients (brokers and shippers) that you’re partnering with a freight factoring company.
- Submit complete and accurate payment requests, including the signed bill of lading and rate confirmation sheet.
- Pay the factoring company back if your client doesn’t pay. (Depending on the circumstances and if you have a recourse arrangement.)
- Remain in compliance with your local DMV and the federal agencies, specifically DOT and FMCSA.
Remaining in compliance with state and federal laws and regulations is essential, and it’s one of the areas where trucking companies often make mistakes. Make sure you know the common violations and avoid making any mistakes regarding them.
1. Driver Fitness or Qualification Issues
You need your drivers to do their part and follow the laws and rules they learned when getting their CDL. That includes maintaining all certifications and licenses, following road laws, and never driving while impaired. If a driver requires corrective glasses or lenses to drive, the driver needs to maintain annual eye exams and contact lenses or glasses anytime that driver is behind the wheel.
If a driver knows there is a problem, the driver needs to know the importance of telling you and refuse to drive. Suppose the driver has severe seasonal allergies and the medication the doctor recommends causes drowsiness. The driver shouldn’t drive after taking that medication. One ticket for failing to maintain a lane, running a red light, or speeding can impact your freight factoring partnership.
2. Failure to Follow Federal or State Regulations
State and federal regulations and laws are important for truck drivers to follow. Trucking company owners must make sure the rules are known and followed by drivers. The following agencies all have regulations that they enforce.
Department of Transportation (DOT): Responsible for issuing a trucking company a USDOT number, which is important as Motor Carrier (MC) numbers are being phased out in October 2025. The number is used to monitor safety records, including audit results, crash reports, and investigations.
Federal Motor Carrier Safety Administration (FMCSA): The FMCSA is an agency under the DOT. It’s responsible for establishing and enforcing regulations within the transportation industry. The FMCSA manages matters like driver qualifications, drug and alcohol testing, hours of service (using ELD data), and vehicle maintenance.
Prevention of crashes by tired drivers is important, and that’s why the FMCSA regulates hours of service (HOS).
- If a driver is carrying passengers, there is a 10-hour driving limit after 8 consecutive hours of being off-duty.
- Truckers carrying items or property must drive no more than 11 hours after 10 consecutive hours of being off duty.
- No driver of passengers can drive more than 15 consecutive hours, while drivers carrying items cannot drive more than 14 consecutive hours.
- Drivers need to take a 30-minute break for every 8 hours of driving without interruption.
- Drivers cannot drive more than 60 hours in 7 consecutive days of driving or 70 hours in 8 consecutive days of driving. Once they’ve reached that point, a break of at least 34 hours is required.
There are exemptions for short-hauls and driving in adverse driving conditions. Using electronic logging devices (ELDs), the FMCSA and trucking company owners can track drivers’ hours accurately.
The FMSCA also tracks your Compliance, Safety, and Accountability (CSA) score. Check it regularly. CSA looks at the data from the last two years and organizes that data into what’s called the Behavior Analysis & Safety Improvement Categories (BASICs).
- Controlled Substance/Alcohol Use
- Crash Indicator
- Driver Fitness
- Hazardous Materials Compliance
- Hours-of-Service Compliance
- Unsafe Driving
- Vehicle Maintenance
IFTA, Inc:
The International Fuel Tax Agreement is overseen by a non-profit company in Arizona. The International Fuel Tax Agreement is an agreement between Canada and the U.S. when it comes to paying and reporting fuel taxes for commercial vehicles that cross between 10 Canadian provinces and 48 states.
Trucking companies must apply for an IFTA license, and state agencies are responsible for making sure companies are compliant with state tax laws, while the motor vehicle department ensures licenses are current and decals are placed in the proper areas of a truck and trailer.
When you’re not in compliance, you risk four key fallouts.
- Delayed Funding: Instead of same-day payments, you might have to wait several days.
- Denied or Terminated Contracts: The freight factoring company may refuse to work with you or cancel your contract.
- High Freight Factoring Fees: The lowest freight factoring fees won’t be available to you. You lose more money with each advanced payment.
- Lower Advance Rates: Instead of 95% or 100% funding advances, you may only qualify for 85%.
Stay Compliant and Protect Your Finances
Keep your freight factoring rates low by making sure your company and your drivers comply with rules and regulations. Do this by:
- Keeping licenses and permits up-to-date.
- Investing in driver training programs.
- Monitoring your CSA score with the FMCSA.
- Setting alerts for changing laws and regulations to ensure you don’t miss any updates or additions.
- Staying on top of maintenance and repairs for your trucks and trailers.
- Taking advantage of technology.
Work With an Expert in the Trucking Industry
Strong finances start with staying in compliance. When you do, your freight factoring partnership works as you expect it to. Because Saint John Capital’s expertise is in the trucking industry, we can help you get the lowest rates and advantageous freight factoring arrangements.
Reach us online or by phone to learn more about keeping your freight factoring rates low and how to get same-day payments. With a strong cash flow, you’re going to thrive in this turbulent market.
