As the owner of a transportation company, you already know that cash is what keeps trucks on the road. It’s frustrating, however, that trucking doesn’t always align with the speed at which you need to be paid. You delivered a load today, but your clients often take one or two months to pay you.
The gap between your delivery and payment is what leads to financial struggles. Trucking company owners often rely on one of two financial products: freight factoring or a traditional line of credit (LOC).
Both products provide liquidity – the money you need to stay afloat in lean periods. Yet that’s where the similarities end. They’re quite different in how they work and what they help you achieve.
What Is Freight Factoring?
Freight factoring involves partnering with a third-party company (a factor) that purchases your unpaid invoices at a small discount (factoring fee). In exchange for the discount you agree to, you receive immediate payment.
This product isn’t a loan and doesn’t affect your credit score. It’s a cash advance against your unpaid invoices. When your client pays, they pay your factor. However, if your client doesn’t pay as promised, complications can arise. You could become responsible for repaying the money you received.
Non-recourse factoring is a way to avoid repayment. If your client failed to pay its invoice because of a sudden company closure or bankruptcy, you’re protected from repayment. The slight downside is that the factoring fee is slightly higher.
What Is a Traditional Line of Credit?
Compare that to a traditional line of credit. This is a loan you take out with a financial institution, such as a credit union or bank. You go through a credit check, and underwriters evaluate the risk of lending to you. This product impacts your credit score.
If your loan is approved, you have access to funds you can draw on during a specific draw period. Use the funds to pay bills or upgrade equipment. Your monthly payments are often interest-only, based on the amount you use rather than the total credit line. As you make these payments, the funds are freed up for use again in the next lean period.
With a line of credit, you don’t have to use the full amount you borrow. Use only what you need, and pay interest only on the amount you’ve used. After the draw period ends, you start paying interest on the amount you’ve borrowed, plus the principal. It’s sometimes possible to renew the draw period, but that depends on your credit score and the financial institution’s policies.
Some arrangements require you to pay interest plus principal from the start. You need to read the terms carefully to understand your obligations. Also, remember that the more you borrow, the higher your monthly payments will be. You need to be able to make those payments, even if you don’t have money coming in.
What Freight Factoring Companies Look For vs. a Lender
Most people are familiar with the steps to secure a bank loan. You fill out an application, the bank runs a credit report, underwriting assesses your ability to repay, and you’re told the decision. You may need to reduce the requested loan amount or provide collateral to obtain approval. Generally, the higher your business credit score, the better your chances.
You pay interest on a line of credit, and it can be substantial. According to NerdWallet, the average business loan interest rates in January 2026 range from 10% to 99%. You might also have to pay an origination fee, late payment fees if you don’t pay on time, and maintenance fees to keep your credit line open.
Freight factoring isn’t a loan. The process is different.
- Sign up with your company name, contact information, and MC number.
- Answer the required questions, such as whether you want recourse or non-recourse arrangements
- Provide the factor with the names and contact information for the brokers and shippers you work for.
- Get a rate quote, including your factoring fee.
- Sign the contract.
When you deliver a load for your client, send a payment request to the factor. They review the paperwork and issue approval. You get paid as quickly as that afternoon.
You don’t pay interest. Instead, a small fee is taken from the money you’re advanced. That fee is usually well under 5%, which is substantially lower than a loan.
How Fast Do You Want to Grow?
Your trucking company revolves around insurance, licenses, truck maintenance, and fuel. When you cannot afford one or more of those standard expenses, you can’t work. If you’re not working, you’re not making money.
Both freight factoring and a business line of credit help you cover those expenses. They’re not interchangeable, however. One is much better than the other in certain situations.
Freight factoring doesn’t appear on your credit report. It’s relatively private. You do have to inform your clients that a factor will handle your accounts and collect payments, but it won’t show up on your credit report. It doesn’t impact the loans you may need in the future.
Lines of credit are on your credit report and impact your score. It’s going to impact your debt-to-income ratio. If you need a new loan for a new truck three years from now, a line of credit can ruin your chances of approval.
What’s Required From You With Freight Factoring Companies vs. Lenders?
When you agree to a business line of credit or a freight factoring arrangement, there are different things expected of you.
1. Credit Checks:
Start with credit checks. In a freight factoring arrangement, you should do your due diligence and run a credit check on a potential new client. Verify that the company pays bills on time and doesn’t have a long history of delinquency or non-payment.
With a traditional line of credit, the financial institution runs a credit check on you. You should review your credit report and request that any errors be corrected a few months before you apply for a loan to ensure there are no hidden surprises that could impact your chances of approval.
2. Repayment:
If your clients never pay the invoice, your freight factoring company can come after you for repayment. If you have a non-recourse arrangement, you’re protected in specific situations. It protects you from repayment.
If your clients don’t pay you, you still must pay your traditional line of credit. Failing to pay could result in late fees or loan default, causing significant damage to your credit report. Keeping your lender informed of changes to your income is best, but your client’s failure to pay is not going to keep you from paying back the funds you borrowed.
3. Collections:
With a freight factoring agreement, your factor handles invoicing and collections. You can download a copy of an invoice from the factor’s app or website. Your office staff has less bookkeeping to do.
If you have a line of credit, continue invoicing your brokers and shippers as usual. You’re also responsible for collections. You need office staff to handle these tasks each month.
Which Is the Best for Your Trucking Company?
The best option is the one that best matches your business’s current needs and future goals. Factoring may provide immediate cash flow, but a line of credit focuses on the capital you need over the years to come.
Saint John Capital specializes in the trucking industry, which many lenders don’t fully understand. Our trucking lines of credit are a fantastic solution for some, but they’re not ideal for everyone. That’s why we offer both.
Give us a call to learn more about our freight factoring and business line of credit terms. We’ll help you decide which best fits your company’s needs, or we can discuss whether both might suit your company’s needs.
