Your factoring rate might look the same, but that doesn't always mean you're paying the same amount.
When the Federal Reserve raises interest rates, most trucking companies aren't thinking about how that decision could affect their factoring agreement. But for some carriers, rising interest rates can mean paying more to factor their invoices, even if the factoring rate they originally agreed to hasn't changed.
That's because some factoring companies tie a portion of their fees to something called the prime rate. When that rate increases, the factoring company may pass the additional cost along to its clients.
And depending on how the factoring agreement is structured, those costs may appear as additional fees or deductions rather than an increase to the stated factoring rate.
Here's what carriers should know about how interest rates can affect freight factoring costs, where to look for additional charges, and how to make sure they're paying what they expect.
What Do Federal Interest Rates Have to Do With Freight Factoring?
Freight factoring allows trucking companies to sell their unpaid freight invoices to a factoring provider in exchange for faster access to cashflow. In return, the factoring company charges a fee, typically expressed as a percentage of the invoice amount.
Most carriers focus on that percentage when comparing factoring companies. But the rate you're quoted doesn't always tell the full story of what you'll pay.
Some factoring companies borrow money to fund the invoices they purchase. When borrowing becomes more expensive, those providers may have provisions in their factoring agreements that allow them to pass some of those additional costs to their clients.
This is where the prime rate comes into play.
The prime rate is a benchmark interest rate commonly used by financial institutions when determining borrowing costs. It is influenced by changes to the Federal Reserve's benchmark interest rate, although the two rates are not the same.
When the Federal Reserve increases interest rates, the prime rate will often increase as well.
For carriers whose factoring costs are tied to the prime rate, that can mean an increase in what they pay for factoring.
The important distinction is that not every factoring company handles these changes the same way, and not every factoring agreement allows for these adjustments.
What Is Prime Rate Factoring?
Some freight factoring agreements include pricing provisions commonly referred to as Prime Plus.
Under these arrangements, a portion of the carrier's factoring cost is tied to the prime rate, with an additional percentage or fee established by the factoring company.
For example, an agreement might reference:
Prime Rate + 3.5%
The 3.5% portion may remain unchanged, but the prime rate can fluctuate over time.
When the prime rate increases, the total cost calculated under that agreement may increase as well.
However, the way those costs are calculated and collected can vary significantly between providers.
Some factoring companies adjust the rate used to calculate funding costs. Others maintain the factoring rate displayed to the carrier but collect the difference through a separate fee or adjustment.
That means a carrier could continue seeing the same factoring rate on their statements while paying more to factor their invoices.
How Much Could Rising Interest Rates Actually Cost a Trucking Company?
Even relatively small increases in factoring costs can add up, especially for carriers factoring large invoice volumes.
Consider a hypothetical example of a trucking company factoring $100,000 in invoices each month.
If its factoring company adds a fee equal to 0.50% of that monthly invoice volume, the additional cost would be:
That's $6,000 in additional factoring expenses over a year, assuming the same invoice volume and fee each month.
And that money comes directly out of the carrier's cashflow.
It's important to understand that this is an illustration of a fee charged against invoice volume, not a calculation of what a specific Federal Reserve rate increase would cost.
Some prime-linked factoring agreements calculate additional funding costs daily, based on the amount advanced and how long an invoice remains outstanding.
For example, if a factoring company advances $100,000 and applies an additional 0.25 percentage points in annualized funding costs over 30 days, the additional charge would be approximately $20.55, using a 365-day calculation.
The actual amount a carrier pays depends on the factoring agreement, the advance amount, the time invoices remain unpaid, and how the provider applies rate adjustments.
The takeaway? Even if your factoring rate looks competitive, you need to understand how every fee is calculated to know your true cost.
Can Your Factoring Rate Stay the Same While Your Costs Increase?
Yes. And this is one of the most important details for carriers to understand.
When comparing factoring companies, carriers often focus on the advertised factoring rate. But some agreements allow for additional charges that aren't necessarily reflected in that percentage.
Depending on the provider, prime-related cost increases may appear as:
- Additional invoice fees: A separate charge applied when an invoice is processed or paid.
- Funding cost adjustments: An additional amount calculated based on changes to the prime rate.
- Reserve deductions: Fees deducted from funds that would otherwise be released to the carrier after an invoice is collected.
- Daily accrued charges: Costs that accumulate for each day an invoice remains outstanding.
For example, a carrier may have signed a factoring agreement with a stated rate of 3%.
If that agreement also allows the factoring company to collect additional costs tied to changes in the prime rate, the carrier's total factoring expense could exceed 3%, even though the stated factoring rate hasn't changed.
Not all providers assess these charges, and their application depends on the terms of the agreement.
That's why it's important to look beyond the advertised rate and understand the total amount being deducted from every invoice.
How to Tell If Your Factoring Company Can Increase Your Fees
If you're already factoring, you don't have to wait for an unexpected charge to find out whether interest rate changes affect your agreement.
Start by reviewing your factoring contract and asking your provider a few questions.
1. Is any part of my factoring cost tied to the prime rate?
Look for terms such as prime rate, Prime Plus, variable rate, interest rate adjustment, or funding cost adjustment.
If any of these appear in your agreement, ask your factoring company to explain exactly how they affect what you pay.
2. Can my factoring costs increase without my stated rate changing?
A factoring rate that stays the same doesn't necessarily mean your total fees are fixed.
Ask whether changes in borrowing costs can result in additional charges beyond the factoring percentage you were quoted.
3. Are additional fees deducted from my reserve balance?
Some factoring providers may deduct additional charges from a carrier's reserve balance when an invoice is paid.
Review your statements to understand whether the full reserve amount is being returned after the agreed-upon factoring fees and other authorized deductions.
4. Do my factoring costs increase the longer an invoice remains unpaid?
Some factoring agreements calculate certain charges daily while an invoice is outstanding.
That means the amount you pay could depend on how long it takes your broker or shipper to pay, not just the factoring rate you agreed to.
5. Can you show me the total cost of factoring a specific invoice?
One of the easiest ways to understand your factoring costs is to ask your provider for an itemized example.
For a $5,000 invoice, how much would you actually receive after all factoring fees, funding adjustments, and other applicable charges?
Comparing the total cost of factoring an invoice is often more useful than comparing advertised percentages alone.
How to Avoid Unexpected Freight Factoring Fees
Understanding your factoring agreement is the first step toward protecting your trucking company's cashflow.
Before choosing a factoring provider, make sure you understand not only the rate being advertised but also the circumstances under which your total costs could change.
Look for a provider that clearly explains its pricing, discloses additional charges, and helps you understand what you'll receive when an invoice is funded and collected.
At OTR Solutions, we believe carriers should know what they're paying for factoring without having to decipher complicated pricing structures or worry about hidden fees.
Our factoring solutions are designed to give carriers predictable pricing, transparent terms, and reliable access to their earnings.
With True Non-Recourse Factoring, carriers also receive protection against broker nonpayment without chargebacks, even if a broker remains in business or an invoice goes unpaid beyond 90 days.
And with Truly Instant Funding, eligible invoices can be funded 24/7/365 directly to any bank account, including nights, weekends, and bank holidays.
Combined with dedicated in-house account management and billing and collections support, OTR helps carriers spend less time worrying about their factoring company and more time running their business.
The Bottom Line: Know What You're Actually Paying for Factoring
Federal interest rate changes may seem disconnected from the day-to-day operations of a trucking company, but they can have a real impact on factoring costs.
For carriers whose factoring agreements are tied to the prime rate, an increase in interest rates could mean paying more to access the same cashflow.
And because those additional costs aren't always reflected in the stated factoring rate, some carriers may not realize they're paying more.
Before signing a factoring agreement, or if you're already factoring, take the time to understand how your fees are calculated and whether they can change.
Because what matters isn't just the factoring rate you're quoted. It's how much of your hard-earned money you actually keep.
Looking for freight factoring without hidden fees?
Explore OTR Solutions' True Non-Recourse Factoring and see how transparent pricing, 24/7/365 Truly Instant Funding, and dedicated support can help your trucking business keep moving.
Explore Factoring with OTR Solutions
Frequently Asked Questions
Does the Federal Reserve control freight factoring rates?
No. The Federal Reserve does not directly set freight factoring rates. However, its interest rate decisions influence borrowing costs and the prime rate, which some factoring companies use when calculating their fees.
What is the prime rate in freight factoring?
The prime rate is a benchmark interest rate that some factoring providers reference in their pricing agreements. If your factoring costs are tied to the prime rate, changes to that benchmark may affect how much you pay.
Can my factoring company raise my rate without telling me?
Whether a factoring company can adjust your pricing depends on your agreement and applicable law. Some contracts contain provisions allowing costs to change when the prime rate changes. Review your agreement and ask your provider how adjustments are disclosed and applied.
Are all freight factoring rates tied to the prime rate?
No. Not all freight factoring providers use prime-linked pricing. Some offer fixed factoring rates, while others may include variable charges or separate funding cost adjustments. Always review the complete pricing structure.
How can I tell if I'm paying hidden factoring fees?
Review your factoring statements and compare the fees deducted against the pricing outlined in your agreement. Pay particular attention to additional funding charges, rate adjustments, and reserve deductions. Ask your factoring company for an itemized breakdown if anything is unclear.
