Factoring Contracts: 5 Red Flags Small Trucking Companies Shouldn’t Ignore

Factoring can improve cash flow for trucking companies — but not all factoring contracts are created equal. Some agreements look helpful on the surface yet trap carriers in costly, restrictive terms that drain profits and limit flexibility. Before signing anything, it’s critical to understand the red flags that can put your business at risk.

Red Flag #1: Recourse vs. “Non-Recourse” Factoring
Many factoring companies advertise “non-recourse” programs, but the fine print often tells a different story. Some still make carriers financially responsible for unpaid invoices under certain conditions, like shipper disputes or customer insolvency. If the factor can charge back invoices, it’s not true non-recourse — and your risk hasn’t gone anywhere.

Red Flag #2: UCC Filings That Lock Up Your Receivables
A UCC lien gives the factoring company legal control over your receivables. This is standard in the industry — but it becomes a major problem when you want to switch providers. Some factors delay releasing their UCC filing or use it as leverage to keep you locked in. Make sure you understand how and when their lien can be removed.

Red Flag #3: Bundling Fuel Cards With Factoring
Some factors bundle fuel advances or fuel cards into their factoring contracts. It sounds convenient, but it can leave you stranded if there’s a dispute or delayed payment. When your fuel card depends on your factoring balance, one hiccup can shut down both cash flow and fuel access.

Red Flag #4: Hidden Fees That Erode Your Margins
Factoring costs aren’t just about the advertised rate. Watch for hidden charges buried in reserve accounts, reserve release delays, credit checks, minimum volume requirements, early payoff fees, and monthly maintenance fees. A low rate doesn’t matter if the contract is packed with add-ons that drain your settlement.

Red Flag #5: No Clear Exit Plan
Some factoring contracts require lengthy written notice — 60 to 120 days is common — and charge steep termination penalties if you want out early. If a factor makes it hard to leave, that’s a sign the relationship won’t be in your favor.

Protect Your Business With NASTC
Before you sign a factoring agreement, talk to NASTC. We help carriers and small fleets review contracts, spot hidden traps, and choose financing options that protect your cash flow, your receivables, and your independence. Your money should stay where it belongs — in your account, not in someone else’s contract fine print.