Freight Brokers Stretching to Net-90/Net-120 Payment Terms — Factoring vs MCA for Owner-Operators
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Freight Brokers Stretching to Net-90/Net-120 Payment Terms â€" Factoring vs MCA for Owner-Operators
If you haul freight for a living, you've probably noticed the wait for payment getting longer. Terms that used to be net-30 have crept out to net-60, and now some brokers are pushing net-90 or even net-120. Loads get delivered, paperwork gets filed, and then you sit. Fuel, insurance, maintenance, and payroll don't wait 90 days, even if your broker does.
When that gap widens, owner-operators and small fleets usually land on one of two tools to bridge it: invoice factoring or a merchant cash advance (MCA). They solve a similar problem but work in very different ways, and picking the wrong one for your situation can cost you more than the cash flow gap ever did.
How factoring works
With factoring, you sell your unpaid freight invoices (or a batch of them) to a factoring company at a discount. The factor pays you most of the invoice value up front, then collects payment directly from your broker or shipper when the invoice comes due. Once collected, you typically get the remaining balance minus the factoring fee.
The appeal is that factoring is tied directly to work you've already done. You're not borrowing against the future, you're getting paid faster for freight you already hauled. The tradeoff is that the factor is now involved in your broker relationship, since they collect the payment. Some brokers are fine with this and even have preferred factoring partners. Others are slower to adjust, or fees can stack up if you're factoring every load every month.
How a merchant cash advance works
An MCA works differently. Instead of selling individual invoices, a business receives a lump sum of capital up front and repays it through a fixed percentage of future revenue (or fixed daily/weekly payments), based on the business's typical cash flow. There's no invoice-by-invoice transaction, no broker involvement, and no change to how you bill your customers.
For an owner-operator whose revenue doesn't come from a single stream of invoices (say, a mix of contract freight, spot loads, and the occasional brokered load with a long payment cycle), an MCA can be simpler to manage day to day. You get funding once and let repayment track your business's actual cash flow, rather than juggling which invoices to factor and which to hold.
Which one fits a net-90/120 problem?
If the core issue is a handful of large invoices sitting with slow-paying brokers, factoring can make sense because it's targeted at those specific receivables. If the issue is broader, i.e. your whole payment cycle has slowed down and you need working capital to keep trucks moving, fuel cards funded, and payroll covered while you wait on multiple accounts, an MCA is often a more flexible fit because it isn't tied to any one invoice or broker relationship.
Some owner-operators use both at different times, factoring the occasional slow invoice while relying on an MCA for general working capital. There's no universal right answer here. It depends on how many brokers you work with, how consistent your load volume is, and how comfortable you are with a factor touching your customer relationships.
A note on how Clover Advance fits in
Clover Advance is a direct funder of merchant cash advances, meaning we fund deals with our own capital rather than shopping your file around to other lenders. Every business's freight volume and payment cycle looks different, so nothing here is a quote or an approval, just context to help you think through the decision before you're in a cash crunch and forced to choose quickly.
If net-90 or net-120 terms are squeezing your operation and you want to talk through whether an MCA fits your situation, reach out through our contact form.