How to start a freight factoring company

To start a freight factoring company you need capital you can afford to have tied up in receivables, lawyer-drafted factoring contracts, a UCC filing and notice-of-assignment process, a credit program for brokers, a verification program for carriers, back-office software, fraud controls, and any license or disclosure process your state requires. The order matters: the controls have to exist before the first funding, not after the first loss.

• Capital plan and funding sources, with a cushion for losses.
• Entity formation, bank accounts and a lockbox or payment address.
• State licensing and disclosure review with counsel.
• Factoring agreement, guaranty, notice of assignment and letter of release, drafted by counsel.
• UCC search and filing process.
• Broker credit policy with limits and concentration rules.
• Carrier onboarding: authority, identity, bank ownership, liens and prior factors.
• Back-office software and credit data.
• Written fraud controls, especially for bank-account changes.

Roughly as much as your advances outstanding at any one time, plus a cushion for losses and operating costs. Advances go out on day 0 and come back when brokers pay, so capital need is volume times time. Here is a small hypothetical book.

The 32.5% is before cost of funds, salaries, software, credit data, legal fees, bad debt and fraud. It also ignores reserve timing, so treat it as a ceiling. The last two rows are the point: on small volume, one fraud event erases weeks of revenue. Model your own book in the factoring cost calculator, and read broker credit and days-to-pay for why the DTP assumption drives everything.

Most new factors start with owner equity, then add outside money: private investors, a bank or specialty-lender line once they have a track record, or participations with a larger funder. Raising money from investors can be a securities offering, and lender lines come with covenants and reporting. Have counsel review both before you sign.

It depends on the state, and on how your transactions are structured. The IFA's own guidance for new factors says an attorney "can also assist you with any business or lender license you might need depending on what state you are located in." Treat the examples below as reasons to ask, not as answers.

• California licensing. The California Financing Law (CFL) "requires the licensing and regulation of finance lenders and brokers making and brokering consumer and commercial loans," per the DFPI. Factoring is usually structured as a purchase of receivables rather than a loan, so whether a CFL license applies depends on your program's terms. Ask California counsel before you fund California carriers.
• California disclosures. California's commercial financing disclosure regulations took effect on 2022-12-09 and cover commercial factoring. Covered providers must disclose items including the funding amount and an annual percentage rate.
• New York disclosures. New York's Commercial Finance Disclosure Law applies to commercial financing of up to $2,500,000, and its regulation sets disclosure formats for "factoring transaction financing."

Decide early how you will define non-recourse if you offer it. The definition drives pricing, client expectations and most of your disputes, as what non-recourse factoring doesn't cover shows. Your counsel should review the full package before your first client signs.

UCC Article 9 covers not only loans secured by personal property but also "a sale of accounts" (§9-109(a)(3)), which is why factors file financing statements even though they buy invoices. A registered organization such as an LLC or corporation is located in the state where it was organized (§9-307(e)), which tells you where to search and file. Among conflicting perfected interests, priority generally runs from the earlier of filing or perfection (§9-322(a)(1)).

1. 1

   Search before you fund

   Search the carrier's state of organization for existing UCC-1 filings. The UCC search directory links every state's search portal, and UCC searches before funding explains what to look for.

2. 2

   Clear prior liens

   If another factor or lender has a filing, get a release letter or a UCC-3 before funding, or negotiate a buyout.

3. 3

   File your own UCC-1

   File with the correct filing office and keep proof of the filing date.

4. 4

   Send notices of assignment

   Under §9-406(a), once a broker receives a proper notification that the account was assigned, it can no longer discharge the debt by paying the carrier. Generate one with the NOA generator.

5. 5

   Track every notice

   Record when and how each broker received it, and handle conflicting NOAs quickly.

The notice of assignment guide covers delivery and releases in more depth. This is a summary of model UCC sections; states adopt them with variations, so confirm the details with counsel.

Underwrite both sides of every invoice. The broker is the credit risk: will it pay, and how fast. The carrier is the fraud risk: is the applicant really the owner, is the load real, and does the bank account belong to the business.

• Carrier authority. Check USDOT status, authority age, insurance and revocation history. FMCSA moved registration to Motus in 2026, so read FMCSA Motus explained before you rely on older data. The free carrier check is a starting point.
• Carrier identity and bank. Confirm the person applying controls the carrier, and that the bank account is in the carrier's legal name. The carrier vetting checklist has the full list.
• Broker credit. Use bureau data plus your own collections history, and set limits per debtor.
• Pricing and structure. Choose fee schedules, advance rates and reserves on purpose; see freight factoring rates and advance rate and reserve.

At minimum: a back-office system that handles schedules, advances, reserves, fees, cash application and collections; a credit data source for brokers; FMCSA data for carriers; and a way to verify identity and bank ownership. You can run the first few clients on spreadsheets, but you lose access control and audit history on the most dangerous field you hold: the client's bank account.

The factoring software buyer's guide compares back-office systems using only what vendors publish, and lists the questions to ask in a demo.

• Verify the applicant's identity and match it to the carrier's officers of record.
• Verify that the bank account belongs to the carrier's legal entity before the first ACH.
• Run a UCC search and resolve every prior filing.
• Confirm each load with the broker using contact details you sourced yourself.
• Match the rate confirmation, BOL and POD, and look for edits (fake documents guide).
• Require a call-back on a number already on file, plus a second approver, for every bank-account change (remit-to change SOP).
• Check for duplicate invoice numbers and amounts within your own book.
• Watch authority and insurance status for active clients and debtors.

A new factor is still writing its process, which is exactly when written controls matter most. The first two items are what Verified Payee does, with every bank change re-verified before the next ACH; the demo shows the flow end to end.

The International Factoring Association (IFA) runs a page for people starting a factoring company. It lists a "Starting & Running a Factoring Company" training recording covering funding options, UCC filings and legal documents, licensing and factoring basics. It also points to a book, consulting help and a list of IFA Preferred Attorneys.

• IFA training classes are open to non-members, with discounts for members.
• IFA lists first-year membership at $750 plus a $100 application fee, with benefits that include 2 hours of consulting and access to volunteer mentors for new factors.
• Its Preferred Ally vendor list covers software, credit, UCC and collections providers.

Our page for new factoring companies collects the tools and guides on this site that matter most in year one.