OTR Solutions FAQs | Frequently Asked Questions - OTR Solutions


What is invoice factoring

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How much do factoring companies charge?

Factoring companies charge a discount fee, also known as a percentage fee, on the dollar amount of the invoice factored. The percentage rate varies based on services offered, program type, and monthly factoring volume to name a few. Factoring rates range from <1% to 4%, depending on the carrier’s operation.

What is a reserve?

A reserve is an additional percentage held from each invoice to offset the risk of non-payment by a broker. When the broker pays the invoice, the reserve amount held is released back to the carrier. If an invoice does not pay, the reserve account is used to cover the total invoice amount. Reserves are common in recourse factoring programs where more customer credit risk is involved.

What is Non-Recourse Factoring?

Non-recourse factoring refers to a factoring program where once the invoice is factored, the factoring company is responsible for collecting payment indefinitely, and not the carrier.

What is Recourse Factoring?

Recourse factoring refers to factoring programs where the carrier takes on the risk of unpaid invoices after a certain period of time. Recourse programs are preferred by larger carriers who can assume that risk and work with potentially more risky customers. Invoices factored under a recourse program are usually charged back to the carrier 60-90 days from initial funding.

What is the difference between recourse and non-recourse factoring?

Recourse and non-recourse factoring refer to who is liable if the factoring company cannot collect payment on the factored invoice after a certain period of time. Under a recourse program, the carrier is ultimately liable to repurchase the invoice if the factor cannot collect payment after a certain period of time. Under a non-recourse program, the factoring company is responsible and is liable for any defaults of payment from the broker, assuming the carrier met all of the obligations of their contract.

Which program is best for my company?

Non-recourse programs are designed for new and existing carriers in the small to mid-size range. Recourse programs are designed for larger carriers with more dynamic customer profiles and operational needs.

How much should I expect to be funded when I factor?

Depending on the factor and program type, funding rates can be anywhere between 90% and 99% of the invoice amount. This is determined by your individual contract terms. Be sure to know exactly what your factoring rate is, any additional fees, or extra stipulations that may incur additional charges. The lowest rate is not usually the best, especially when you take into account hidden fees, terms affecting non-payment liability, and ability to receive customer support as you run your business.

What are the different types of factoring rates?

Factoring companies generally offer either a flat factoring rate or a tiered rate. Flat factoring rates charge the same percentage on each invoice factored, regardless of how long it takes the broker to pay. Tiered rate programs increase the fee depending on the time it takes for a broker to pay, usually in 15-day increments.

Why use factoring instead of quick pay?

Quick pay is an expedited funding option offered by some brokers, each with their own terms and rates. As you diversify your business and utilize multiple brokers, the management of all the different contracts, terms, and paperwork grows exponentially. The benefit of factoring is that you have an organized and centralized source for all back-office-related needs. Factoring companies handle the back-office burden while you focus on running your business.

How much are you REALLY paying for factoring?

Your effective rate is inclusive of your factoring rate plus any additional fees that may be in your contract for each transaction. Additional fees may be related to transfer fees, service fees, or fees related to invoice minimums. For example, you may have a 2% factoring rate, but your total “effective” rate is 4% when you add in all the other fees.

What is a Notice of Assignment (“NOA”)?

A notice of assignment is a legal document that notifies customers of a factoring relationship. The document informs the customer that account receivables have been re-assigned and future payments should be made payable to the factoring company.

What is a Letter of Release (“LOR”)?

A letter of release is a legal document provided to customers that releases the factoring company’s Notice of Assignment (NOA) and assigns account receivables back to the carrier.

Application Process/Requirements

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How long does it take to set up with a factoring company?

Specific to OTR Solutions, once your application is completed and all paperwork is submitted, you can set up an account and get funded within just a couple of hours.

What are the requirements to set up with a factoring company?

Factoring companies generally require you to complete an application and sign a factoring agreement to get set up. Additional paperwork may also be needed, typically including a valid driver’s license, W-9, banking information, and Certificate of Insurance (COI).

What to look for in factoring contracts (or keep an eye out for)?

You want to make sure that you pay special attention to contract terms.  Some main things to pay special attention to include the contract termination process, length of the contract, chargeback terms, and any additional or “hidden” fees above your contract rate.  All of these will have a significant impact on managing and growing your business.

Will a factoring company check my credit score?

This is up to the discretion of the factoring company, and an important question to make sure is answered before you sign a contract or even start the application process. OTR Solutions does not engage in credit checks of its clients.

What types of companies can factor?

Any company working with brokers or shippers who pay invoices in net terms, 15, 30, 45+ days, can use a factoring company.

Which program is best for my company?

Non-recourse programs are designed for new and existing carriers with 1 to 10 power units. Recourse programs are designed for larger carriers with more dynamic customer bases and operational needs.

Does it cost money to sign up?

Signing up with OTR Solutions is 100% free! However, that’s not the case with all factoring companies, so make sure to check before making a decision.

Does my authority have to be a certain age to factor? / Can I sign up when I’m brand new to trucking?

Any carrier who has begun applying for a DOT and/or Motor Carrier authority can set up and work with a factoring company.

What is a UCC filing and why do factors use them?

A UCC (Uniform Commercial Code) is filed with the Secretary of State when a factoring company begins funding a client to give notice that the factoring company has a secured interest in the receivables. This is common practice across the industry, so a secured party knows there is an existing partnership since you can only have one factor at a time.

Funding/Back Office Benefits

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Once I deliver a load, how long will it take to get paid?

Payment can happen in as little as 2-3 hours, with most invoices funded within 24 hours. If the load was delivered without any issues, you would see the funds in your account quickly, but how long it takes will be dependent on the time of day the load is delivered and when the invoice is submitted.

Do I need to invoice both my factoring company and the broker for each load?

No, you only need to invoice the factoring company. Once they receive your invoice and supporting documents, they take care of the rest so you can stay focused on booking and delivering loads.

There are thousands of brokers offering freight, how do I make sure I am working with reputable companies?

Factoring companies should be monitoring credit scores for thousands of brokers so you have peace of mind when booking a load with a new customer. Factors can also check for a history of fraud or unethical business practices, so you don’t have the burden of underwriting the customers you want to work with.

How do I know a broker or shipper is approved to factor with OTR Solutions?

Broker and shipper approvals can be checked 24/7 in our mobile app and online client portal. OTR Solutions is also integrated directly with the DAT Load Board, and approved brokers will show a blue check on their loads!

What do I need to provide to get paid?

Once a load is complete and you have the proof of delivery (POD) in hand, log in to the OTR Solutions Mobile App or Client Portal to submit an invoice. Once logged in, all you need to do is fill out the load details to build an invoice, then upload all of the pages of the Rate Confirmation (Provided by the broker), POD, and any other accessorial you received for the load (Lumper receipts, scale tickets, etc.). The whole process can take less than a minute.

What if the broker doesn’t pay the invoice or charges me a fee after my factor has paid me?

This can differ depending on your factoring program and the specific situation that has caused the issue. As all fees and claims are different, OTR Solutions supports our clients and works on their behalf to resolve any negative balances and address any incurred chargebacks/offsets.

What are the different payment types offered by a factoring company?

The most common payment types factoring companies use to pay carriers are via ACH and Wire, which allows for same-day funding. OTR Solutions offers an instant, direct to debit funding option, called BOLT, to transfer your funds in seconds.

Growing my Business

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I’ve been a company driver for years, what makes using a factoring company better than running everything on my own?

When starting a new company, carriers who do not factor must handle invoicing for payment, tracking their outstanding invoices, and collecting on payments when they are due, not to mention having enough cash on hand to sustain operations for the first month without income. Factoring provides carriers with the freedom to operate on their terms, without having to worry about tedious back-office tasks such as – submitting invoices to numerous different brokers, following up with them for payment status, handling disputes when issues arise, etc.

My business is starting to grow, what value does a factoring company offer for fast-growing fleets?

As your fleet grows, so do your back-office needs. Rather than dedicating time and resources to hiring your own operations and accounting personnel, a factoring company can take on the increased workload and allow you to maintain a successful and profitable operation. We have been doing this for years and are experts on this aspect of your business.

I only plan to use factoring until I have the cash flow to operate on my own, can I ever stop factoring?

Yes. If a carrier decides to stop factoring, they can simply begin invoicing customers directly. Once the factoring company receives payment on all previously factored invoices, you have the option to request a release. This process typically takes between 30 and 60 days.  Before you decide to stop factoring, always confirm the terms of your factoring contract.

If I sign up with a factoring company, do I have to factor all my invoices, or can I pick and choose?

It depends on the terms of your contract. With OTR Solutions, you do not have to factor all of your invoices. However, once an invoice is factored with a particular broker, payments from that broker are directed to your factoring provider, meaning all future loads with that broker need to be factored until a letter of release is provided.

Can a factoring company help me find loads?

Factoring companies themselves do not offer dispatching services. However, some factoring companies are partnered with load boards and dispatching services that can assist with finding and booking freight. OTR Solutions is proudly partnered with the DAT load board.

I’ve seen brokers offer their own form of factoring, why should I even get a factoring company?

Quick pay processes are different for every broker, meaning the actual cost of relying on quick pays can vary, due to the challenge of tracking payments and personally handling paperwork issues. Factoring offers a centralized solution for all back-office needs, which makes it easier when dealing with issues, handling payments, and expecting consistent cash flow.

Commitments, Restrictions and Limitations

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Why do factoring companies need me to sign a contract? Some offer monthly contracts, and others a year, why?

All factoring programs have contracts in place to legally invoice and collect payments on behalf of the carrier. The length of a factoring contract refers mostly to how often the carrier can decide to change factors. Contract lengths do not change how long the contract is in effect as it will remain in place until all open invoices are paid and a termination notice has been submitted.

Will I be able to work with one broker exclusively? Can I work with multiple brokers?

In short, you can work with as many or as few brokers as you want. However, some factoring companies impose minimum monthly volume requirements or concentration limits that do not allow you to only factor one customer. If this is the case, you may open yourself up to additional fees which can severely limit the level of growth your business can achieve. You want to make sure that there are no restrictions or penalties regarding the number of brokers or loads you can run.

Can I sign up with more than one factoring company?

In short, no. This applies to all factoring companies and is mainly a result of broker’s inability to maintain multiple payment assignments. All factoring companies also file a UCC to secure collection rights on the invoice, and since first UCC holder is required, another factoring company will not factor if their filing is in second position.

What happens if I want to change factoring companies?

Often referred to as a “buyout”, moving factoring companies involves the new factoring company purchasing the outstanding invoices from the previous factor to obtain a release. Requirements for changing factoring companies will be outlined in your contract and vary from one factoring company to another. You will want to make sure you are familiar with your exact contract terms, early termination fees, and renewal terms when looking to move to another factoring company.

What if I don’t need factoring anymore?

When you decide that you do not want to factor anymore, you will need to speak with your factoring company about receiving a letter of release from your contract. This is typically accomplished once the factor has been made whole and your balance is zero. This is especially important if you have a contract that requires a minimum factoring amount so that you can avoid any additional fees.

What are buyouts or early-termination fees in a contract?

Buyout or early-termination fees refer to dollar amounts a factor may charge in addition to a carrier’s open receivables. These fees are determined by the existing factoring company and are important for you to know before you sign a contract. Some companies will not charge termination fees if the proper termination notice procedure is followed, and the transition takes place at the end of the contract term. If a contract is terminated early, then termination fees may be charged during the buyout. In addition, buyout fees may be charged by a factoring company for “handling” the transition on top of any outstanding balances.

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