The $30 Billion Factoring Racket and How Brokers and Shippers Profit From Carrier Desperation

Kickback Schemes, Float Income, and the Financial System Designed to Keep Truckers Cash-Starved

I want to start by saying that there are both good and bad factors. There are times when factors have become necessary. Something that most carriers may not know but desperately need to understand is that not all factors are created equal; however, there’s a lot to the factoring market. When I started my first fleet, I was cash-strapped, to say the least. When Inbev purchased Anheuser-Busch, and their terms changed from 30 days to 180 days, that hurt me, so I had to go to a factor. Running even 3-4 or 20 or more trucks has extensive cash flow needs.

The freight factoring industry isn’t just expensive. It’s a carefully designed system that extracts billions of dollars annually from carriers while enriching brokers, shippers, and financial intermediaries who profit from keeping truckers perpetually cash-starved.

This is documented business practice, and it’s time someone talked about it.

The freight factoring industry generates more than $30 billion in annual revenue by charging small carriers 3-5% to advance payment on invoices that large shippers and brokers could easily pay in seven days, but choose not to.

That 3-5% fee might sound reasonable until you do the math: A carrier factoring a $2,000 invoice at 4% pays $80 for the privilege of receiving money they’ve already earned. If that customer was going to pay in 60 days anyway, that’s an effective annual percentage rate of 24%.

For context, credit card companies charge interest rates of 18-25% APR and are widely considered predatory lenders. Factoring companies charge the same rates, but only to an industry with no alternatives.

Let’s trace a single load through the payment chain and see where the money really goes.

The Load:

• Shipper pays broker $3,000 to move freight

• Broker takes their cut: $600 (20% margin on the extreme)

• Broker pays carrier: $2,400

The Carrier’s Immediate Costs:

• Fuel: $800 (due at the pump)

• Driver: $1,200 (paid weekly)

• Insurance and overhead: $200

• Total immediate expenses: $2,200

The Carrier’s Problem: The carrier has earned $2,400 but won’t see that money for 30-60 days. Meanwhile, $2,200 in expenses must be paid immediately. The carrier has two choices: factor the invoice at 4% ($96 fee) or shut down operations while waiting for payment.

The Final Tally:

• Broker profit: $600 (for a phone call and email)

• Factor profit: $96 (for carrying receivable 60 days)

• Carrier profit: $104 (for owning equipment, bearing liability, doing all the actual work)

The carrier, who owns the truck, employs the driver, and bears all the operational risk, earns less than the broker and barely more than the factor.

This isn’t a free market. This is an extraction.

Large shippers aren’t just delaying payment because of “accounting cycles” or “standard business practices.” They’re making money on your money.

Consider Walmart, which at any given time owes carriers an estimated $100 million in outstanding freight bills. By paying Net 60 instead of immediately, Walmart holds that capital for two months.

The Math:

• $100 million held for 60 days

• Invested in money market accounts at 5% annual return

• Earnings per 60-day cycle: $821,918

• Annual profit from float: Approximately $5 million

Walmart makes $5 million per year simply by delaying payment to carriers. And that’s a conservative estimate, their actual carrier payables are likely much higher.

Multiply this across Amazon, Target, Home Depot, UPS, FedEx, and every major shipper in America, and you’re looking at hundreds of millions of dollars in annual profit generated purely from carrier payment delays.

This is why shippers don’t offer universal QuickPay: They’re making too much money on the float.

I was approached by factoring companies offering “referral partnerships.” The pitch was straightforward: Recommend our factoring services to your carriers, and we’ll pay you 0.5-1% of their total factoring volume.

I declined, but many don’t. Here’s how the scheme works:

Step 1: Factoring company approaches large broker with “preferred partner” program
Step 2: Factor agrees to pay the broker a 0.5-1% referral fee on all carrier factoring volume
Step 3: Broker tells carriers they “need” to use the preferred factor for “faster payment processing”
Step 4: The Carrier signs up, believing it’s required to work with that broker
Step 5: Carrier pays factor 4%, factor keeps 3%, factor kicks back 1% to broker

The broker is now making money on both ends. The brokerage commission AND the factoring referral fee.

Some brokers even slow-pay carriers who refuse to use the preferred factor, creating artificial pressure to force participation in the program.

This is entirely legal. It’s also entirely corrupt.

The kickback scheme gets even more sophisticated with large shippers who create “approved carrier” or “preferred vendor” programs.

The shipper tells carriers: “To haul our freight, you must use our preferred vendors”, which include specific factoring companies, fuel card programs, and insurance providers.

What the carrier doesn’t know: The shipper is receiving kickbacks from all of these vendors.

• Factor pays the shipper 0.5% on the carrier factoring volume

• The fuel card company pays shipper rebates on gallons purchased

• The insurance provider pays the shipper for carrier referrals

The shipper makes money on the actual freight movement, the float on payables, and kickbacks from every financial service the carrier is forced to use.

Meanwhile, the carrier pays elevated fees to access freight that should be available based on service quality and rates, rather than on which vendors pay the largest kickbacks to the shipper.

Carriers often ask me: “Why can’t I just get a business line of credit instead of factoring?”

The answer exposes another layer of the system. Banks make significantly more money lending to factoring companies than they would lending directly to carriers. Consider:

Option 1: Bank lends directly to the carrier

• $100,000 loan at 10% APR

• Bank earns: $10,000 annually

• Bank assumes the credit risk of a small, high-risk carrier

• The bank must manage the relationship with a potentially unstable borrower

Option 2: Bank lends to factoring company

• $10 million credit facility at 6% APR

• Bank earns: $600,000 annually

• Bank’s credit exposure is to the factor (much lower risk)

• Factor deals with carrier defaults and collections

• Factor makes $1 million+ charging carriers 4%

Why would any bank compete with its own customers by lending directly to carriers? They wouldn’t. The system works exactly as designed.

Large carriers, such as Swift, Schneider, and Werner, receive institutional financing at rates of 1-2% because they possess the scale and stability that banks seek. Small carriers get stuck with factoring at 3-5% because no one else will touch them.

The result: Small carriers pay 2-3x more for capital than large carriers, making them structurally unable to compete on equal footing.

Some brokers and shippers do offer “QuickPay” programs, 7-10 day payment in exchange for a 2-3% discount on the invoice. This is factoring by another name, but at least it’s transparent and doesn’t involve cross-collateralization or account freezes.

Uber Freight, C.H. Robinson, and TQL all offer QuickPay options. Some carriers swear by them. But here’s the question no one asks:

If these companies can profitably process payments in 7 days for a 2% fee, why is the industry standard still Net 45-60?

The answer is simple: because they make more money on the float and referral fees than they would by being efficient. Uber Freight can offer 1-3 day payment because it is tech-enabled and has automated systems. Traditional brokers could do the same thing, but they choose not to because slow payment is more profitable.

In 2015, Congress passed the FAST Act, which included provisions requiring brokers to provide transparency around transaction records. The goal was to show carriers what shippers actually paid versus what brokers paid the carriers.

The result? Widespread non-compliance, minimal enforcement, and effectively no change in broker behavior. Why? Because the lobbying money flows the other direction.

The Transportation Intermediaries Association (TIA), the broker lobby, spent $1.2 million on lobbying in 2023. Their primary goal is to oppose any regulation of broker payment terms or mandatory QuickPay requirements.

The American Trucking Associations (ATA), which should represent carriers, actually represents large carriers like Swift and Schneider. These companies have access to institutional capital and don’t need payment reform. The ATA doesn’t push for mandatory QuickPay because its members don’t need it.

Small carriers, who would benefit most from payment reform, have no effective lobby. They’re too small, too fragmented, and too financially desperate to organize politically.

The system is rigged, and those with the power to fix it profit from keeping it broken. If Congress actually cared about small carrier viability and fair competition, here’s what they’d do:

1. Mandate 15-day payment terms for all transportation services

• Federal law requiring payment within 15 days of invoice submission

• Penalty: 1% per week late payment fee payable to carrier

• Result: Would eliminate 90% of factoring overnight

2. Ban undisclosed broker-factor referral arrangements

• Make it illegal for brokers to receive compensation from factoring companies without disclosure

• Require transparency: “This broker receives $X annually from factoring referrals”

• Criminal penalties for undisclosed kickbacks

3. Allow carriers to charge enforceable interest on late payments

• Standard 2% monthly interest on any invoice over 15 days old

• Enforceable in small claims court without an arbitration requirement

• Result: Shippers would suddenly pay on time

4. Expand SBA working capital access for carriers

• SBA-guaranteed credit lines at 6-8% APR for qualified carriers

• Competitive with factoring, eliminates the market power of factors

• Requires proof of insurance, authority, and basic financial stability

None of this will happen. The factoring industry generates $30+ billion annually, and that money funds lobbying to maintain the status quo.

While we wait for reform that will never come, here’s what individual carriers can do to minimize their exposure to the factoring trap:

1. Demand QuickPay or charge a premium for slow payment

Write this into your customer contracts: “Standard terms are Net 15 with 2% discount for 7-day QuickPay. Net 30 terms available at 3% premium. Net 60 terms available at 5% premium.”

Make it expensive for customers to pay slowly. Many will choose QuickPay when it becomes financially obvious.

2. Only work with customers who have QuickPay programs

Major companies like Penske, Ryder, C.H. Robinson, and most large dealers already have QuickPay programs. Ask about it during the sales process. If they don’t have one, ask them to establish one. Many will.

3. Build cash reserves aggressively

Every dollar you don’t spend goes into reserves. Target 60 days of operating expenses in reserve within your first year. Once you have reserves, you don’t need factoring, you can self-finance your receivables.

4. Use selective factoring only when necessary

If Customer A pays Net 15, don’t factor that invoice. If Customer B pays Net 60 and won’t do QuickPay, factor just that invoice. Selective factoring minimizes costs and avoids the trap of having your entire account frozen when one customer disputes.

5. Never sign a factoring contract longer than 6 months

Push for month-to-month terms after an initial period. You want an exit ramp when your business becomes stable. Long-term contracts with early termination fees are how factors trap you.

6. Read the fine print on cross-collateralization

The clause that killed my cash flow years ago: “Factor may suspend advances on all invoices if any invoice is disputed or unpaid.” This means one problem customer can freeze your entire operation. Negotiate this out of the contract or find an alternative factor.

I’m launching a new carrier, and I’m building it specifically to avoid the traps I’ve watched destroy carriers for 25 years. The factoring industry is a parasite that exists solely because the payment structure of transportation is designed to keep carriers perpetually desperate.

Brokers could pay in 7 days. Shippers could pay in 7 days. Banks could lend to carriers at reasonable rates. But they don’t, because the current system is more profitable for everyone except the carriers doing the actual work.

Financial desperation creates safety problems. And the factoring system is designed to create financial desperation.

It’s time this industry had an honest conversation about how we’re structured, who benefits, and who gets destroyed. This is that conversation.

The freight factoring industry generates $30+ billion annually by charging small carriers 3-5% to advance payment on invoices that shippers and brokers could easily pay in 7-10 days but choose not to, because slow payment is more profitable.

Brokers receive kickbacks from factoring companies for referring carriers. Shippers make millions on float income by delaying payment. Banks make more money lending to factors than to carriers. And carriers pay for all of it.

The system isn’t broken. It’s working exactly as designed and until carriers understand how they’re being exploited and demand something better, nothing will change.

The Cost of Factoring to the Industry:

• Annual factoring industry revenue: $30+ billion

• Average factoring rate: 3-5%

• Effective APR when factoring 60-day receivables: 24-40%

• Estimated carrier kickback fees paid to brokers: $300+ million annually

• Float income earned by shippers delaying payment: $500+ million annually (estimate)

What Carriers Actually Pay:

• Small carrier factoring $500,000 annually at 4%: $20,000 in fees

• That same carrier with a credit line at 10% APR: $4,166 in fees (assuming $50K average balance)

• Annual cost of factoring vs. credit line: $15,834 extra

How Alternatives Compare:

• Traditional factoring: 3-5% per invoice

• Broker QuickPay programs: 2-3% per invoice

• Business credit line: 8-12% APR (effective ~1-2% per 60-day receivable)

• Shipper QuickPay with discount: 1-2% per invoice

RESOURCE NOTE

Revenue estimates for the factoring industry are based on publicly available reports from IBISWorld, Dun & Bradstreet, and industry analysis from American Factoring Association data. Float income calculations are based on average freight payables for major retailers as reported in annual 10-K filings and money market rates from the Federal Reserve. Referral fee structures are based on firsthand knowledge from operating a brokerage and conversations with factoring company representatives over 25 years in the industry.