The basic factoring cycle does not change much from one industry to the next. What changes is who pays, how invoices are proven, how fast cash is needed and which laws limit the sale of receivables.
Freight and trucking
Trucking is one of the most common uses of factoring. Carriers often wait weeks for payment while fuel, insurance and driver pay are due now. See our page on freight & trucking factoring.
Freight brokers as payers. Many carriers haul loads arranged by a freight broker. In that case, the freight broker, not the shipper, is usually the party that pays your invoice. The factor will check the freight broker's payment history and credit before buying your invoice.
Paperwork. Expect to submit a rate confirmation and a signed bill of lading or proof of delivery with each invoice. Missing signatures are a common cause of delays.
Fuel advances. Some factors offer a fuel advance. This is a partial payment released when a load is picked up, before delivery. It is then deducted from the advance on that invoice. Terms and fees vary.
Freight brokers registered with FMCSA must keep a financial security, such as a surety bond or trust fund, in place. That protects carriers in some nonpayment situations, but it is not a substitute for checking credit.
Staffing
Staffing agencies face a built-in timing problem. Workers are paid weekly. Clients often pay in 30 to 60 days. Factoring helps fund payroll in between. See our page on staffing factoring.
What to expect:
- Approved timesheets usually serve as proof that the work was done.
- Weekly funding is common, timed around your payroll cycle.
- Payroll tax compliance matters. Unpaid payroll taxes can lead to a federal tax lien, which can compete with the factor's claim on your receivables. Factors check for this.
Construction
Construction is harder to factor than many industries. Some factors avoid it. Others focus on it. See our page on construction factoring.
Progress billing. Contractors often bill in stages as work is completed. A progress invoice can be disputed if the customer disagrees on how much work is done.
Retainage. Many contracts hold back a portion of each payment until the project is finished. Factors usually will not advance against retainage, because it is not yet due.
Lien rights. Contractors and suppliers often have mechanics' lien rights under state law. Those rules differ by state, have strict deadlines, and can affect who gets paid first. On federal projects, the Miller Act requires payment bonds that protect certain subcontractors and suppliers.
Pay-when-paid clauses. If you are a subcontractor, your payment may depend on the owner paying the general contractor. Factors examine these clauses closely.
Healthcare
Healthcare factoring is shaped by federal rules on government payers. See our page on healthcare factoring.
Medicare and Medicaid anti-assignment rules. Federal law generally bars a provider from assigning its right to Medicare or Medicaid payments to another party. Payment must go to the provider, with limited exceptions. One exception lets payment go to a bank account in the provider's name, even if a lender or factor has a security interest in that account, as long as the provider keeps control of the account as CMS guidance describes.
In practice, this means healthcare receivables from government payers are often financed through a lending structure with a provider-owned deposit account and a separate "sweep" arrangement, not a direct sale with a remit-to change. Commercial insurance receivables are handled differently and depend on the payer contract.
Privacy. Patient information is protected. Expect the factor to use secure handling and to sign agreements limiting how it uses that data.
Slow payers. Claims can be denied or reduced. That makes advance rates and reserves more conservative than in many other industries.
Government contractors
Selling to federal agencies brings a reliable payer and a specific set of rules. See our page on government contractors.
The Assignment of Claims Act. Federal law limits when a contractor can assign the right to payment under a federal contract. In general, assignment is allowed only to a bank, trust company or other financing institution, must cover all amounts due under the contract, and requires written notice to the contracting officer, the disbursing officer and any surety. The contract must also not prohibit assignment.
The Federal Acquisition Regulation sets out the forms and process. Until the assignment is properly filed and acknowledged, the agency may keep paying you directly.
State and local contracts follow their own rules. Ask your factor how it handles them.
Manufacturing and distribution
Manufacturers and distributors often sell to retailers, wholesalers and other manufacturers on net terms. See our pages on manufacturing and distribution.
What to expect:
- Proof of shipment, such as a bill of lading or carrier tracking, supports each invoice.
- Deductions and chargebacks from large retail customers can reduce what is collected. Factors set reserves with this in mind.
- Customer concentration matters. If one large customer makes up most of your sales, the factor may limit how much it will buy from that customer.
Before you have an invoice. If you need cash to pay a supplier so you can fill a large order, factoring may come too late. Purchase order financing is built for that stage. Many businesses use PO financing to fund the order, then factoring once the invoice exists.