The world of freight factoring and logistics involves complex terminology that can be daunting for trucking businesses, brokers, and shippers. This glossary is your definitive guide to understanding the essential terms in freight factoring, financial management, and logistics operations. By mastering these terms, you’ll gain the knowledge needed to navigate the industry confidently.
1. Financial Terms Related to Factoring
Factoring
Factoring involves selling invoices to a factoring company at a discount for immediate cash. It improves cash flow and eliminates the need to wait for customer payments.
Advance Rate
The percentage of an invoice paid upfront by the factoring company, typically ranging from 80% to 95%.
Reserve
The portion of the invoice value withheld by the factoring company until the customer pays in full. This protects against non-payment or disputes.
Recourse vs. Non-recourse Factoring
- Recourse: The client assumes responsibility for unpaid invoices.
- Non-recourse: The factoring company bears the risk of customer non-payment.
Chargeback
A deduction from future payments made by the factoring company to recover losses from unpaid invoices.
Floating Reserve
A reserve that fluctuates based on payment timelines or disputed invoices.
Spot Factoring
A flexible arrangement where companies factor only selected invoices rather than committing to a long-term agreement.
Portfolio Factoring
Factoring multiple invoices as a group instead of individually.
Service Fee
A percentage-based fee charged for factoring services, covering administration and risk.
Dynamic Factoring
An adaptive factoring approach where rates and terms adjust based on market conditions and risk assessments.
2. Freight and Logistics Terminology
Bill of Lading (BOL)
A document serving as a receipt for goods, issued by the carrier to the shipper. It outlines the type, quantity, and destination of goods.
Freight Charges
The costs associated with transporting goods, including base rates, fuel surcharges, and accessorial fees for additional services.
Load Board
An online marketplace where carriers and brokers post and find available freight loads.
Drop-and-Hook
A logistics practice where a driver drops off a loaded trailer and picks up another preloaded one, saving time.
Deadhead
Miles driven without carrying cargo, often a cost concern for carriers.
Line Haul
Costs incurred for long-distance freight transport, excluding last-mile delivery or additional services.
Dimensional Weight
A pricing method based on a package’s size rather than its actual weight, used to optimise shipping costs.
Freight Forwarder
An intermediary who manages logistics and transportation on behalf of shippers, coordinating multiple carriers if necessary.
Last-Mile Delivery
The final step in the shipping process, delivering goods to their final destination, often the most resource-intensive part of logistics.
Relay Shipping
A practice where multiple drivers cover a long-haul route in segments, reducing transit times.
3. Payment and Credit Terms
Debtor
The party obligated to pay the invoice. In freight factoring, this is the trucking company’s customer.
Credit Check
A process where the factoring company evaluates a customer’s creditworthiness to assess the risk of non-payment.
Invoice Verification
The confirmation of an invoice’s accuracy before the factoring company advances funds.
Quick Pay
A service offering expedited payments to carriers, often as an alternative to factoring.
ACH Payments
Electronic transfers used by factoring companies to deposit funds directly into trucking company accounts.
Aging Report
A report categorising invoices based on how long they’ve been outstanding, used for credit management.
4. Trucking Industry Jargon
Owner-Operator
A self-employed driver who owns and operates their truck. Factoring helps them maintain consistent cash flow.
Carrier
The company or individual responsible for transporting goods from one point to another.
Freight Broker
A middleman who connects shippers with carriers to facilitate freight movement. They often collaborate with factoring companies.
Hot Shot Trucking
Transporting small, time-sensitive loads. Factoring ensures steady cash flow for these rapid-response operations.
Truck-to-Load Ratio
A metric reflecting market demand, showing the balance between available freight loads and trucks in a given area.
5. Factoring Company-Specific Terms
Contract Length
The agreed-upon duration of a factoring relationship, which can be short-term or long-term.
Funding Timeline
The time it takes for a factoring company to release funds, often within 24 hours.
Customer Portal
An online platform provided by factoring companies, enabling clients to manage invoices and track payments.
Analytics Dashboard
A feature offering insights into financial performance, cash flow, and factoring metrics.
Back-office Support
Administrative services such as collections, invoice management, and credit checks provided by factoring companies.
Rebate Programs
Discounts or financial incentives offered to high-volume factoring clients.
6. Legal and Compliance Terms
UCC Filing
A legal claim filed by a factoring company to secure its interest in a client’s receivables.
Perfection of Security Interest
The process by which a factoring company ensures its legal claim over a client’s assets.
Lien
A legal right to claim assets if debts are unpaid, often used in factoring agreements.
Notice of Assignment
A document informing customers that their invoices have been assigned to a factoring company for payment processing.
Non-Assignment Clause
A clause in contracts that may prevent receivables from being factored without prior approval.
7. Emerging Trends in Freight Factoring
Digital Freight Matching
The use of AI-powered platforms to connect carriers and shippers efficiently.
Blockchain in Factoring
Implementing blockchain technology for secure and transparent invoicing and payments.
Sustainability Metrics
Environmental considerations in logistics operations, influencing factoring terms and industry practices.