Cash flow problems are common in the transportation industry because freight brokers or shippers can take anywhere from 30, 60, or even 90 days to get paid after hauling a load. This can be inconvenient in the long run as expenses don’t stop when a truck driver isn’t paid, and gaining access to working capital can be challenging.
If you are in the trucking industry, you have probably heard of “freight factoring.” But what exactly does it mean, and is it right for your trucking business? Read on to learn more about freight factoring and how it can help improve your company’s cash flow.
What is Freight Factoring?
Freight factoring is the action of selling your business’ outstanding invoices to a factoring company for cash. This provides you with immediate cash instead of waiting for your invoices to be paid. Freight factoring services are a tremendous help to trucking companies who are just getting started and don’t have the capital to cover the cost of their next load until they receive full payment for their first load. Factoring a load allows the owner/operator to continue accepting loads and growing the trucking business simultaneously.
Unlike a traditional bank loan, freight factoring incurs no new debt for a business. Getting approved is a lot easier and quicker with a freight factoring company. It’s also beneficial for new trucking companies as approval is based on a customer’s credit, not the trucking company itself. Since the customer is the one who is paying the factoring company, their credit is more important for approval purposes.
Freight factoring services are beneficial as the typical invoice payment terms from a customer can be anywhere from 30, 60, to 90 days. This can be different for truck drivers that have established relationships with direct shippers. There is no long wait time when you work with a trucking factoring company. It also provides a source of consistent cash flow with no new debt from financial bank loans.
How Does Freight Factoring Work?
The process starts when the freight factoring company buys the invoices of their client to pay them immediately once they receive the freight bills. Depending on what freight factoring company you work with, pay times may vary. The best factoring companies will pay their clients within 24 hours of sending in their invoices. The process follows the steps below:
- The trucking company submits an application to the factoring company. From there, the factoring company will lay out the specific factoring contract which includes the rates and fees.
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Once approved, the trucking company books a load and gets a rate sheet. A bill of lading (BOL) is signed at both locations to confirm pick-up and drop-off.
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The BOL and rate sheet are then sent to the factoring company so the trucking company can get paid.
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The trucking factor then advances the invoice amount minus the factoring fee with the agreed-upon payment terms.
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The freight broker or shipper then pays the factoring company 30 to 90 days later.
The process will be different depending on your freight factoring company. Most trucking factoring companies will credit check your clients to minimize working with debtors who don’t pay. This helps trucking companies choose between brokers and shippers they should work with and which ones to avoid. Trucking companies also need to decide if they want to sign up for recourse or non-recourse factoring agreements.
Related: How Much Do Freight Factoring Companies Charge?
Benefits of Freight Factoring
Both small owner-operators and large fleet managers can use freight factoring as soon as their first load has been delivered. The access to quick cash that freight factoring provides helps trucking companies fund their daily operations to grow their small business. Some of the other major benefits of using freight factoring include:
- Quick access to available cash
- Fuel advances and other discounts with fuel cards
- No long-term contracts
- Allows you to find and take on more trucking loads
- Helps new trucking companies get started and grow
Almost all trucking companies will benefit from factoring as it is a way to grow their businesses through getting consistent cash flow. It doesn’t matter if you run a small business or a large one, having access to your working capital to stay on top of your company’s expenses is always beneficial.
What Does a Freight Factoring Company Do?
A freight factoring company will usually pay its clients within 24 hours of them sending in their invoices, funding directly to their bank account. You will no longer have to rely on someone else’s payment terms. Fast payments improve the working capital of trucking companies. A trucking company’s cash flow will improve immediately due to the cash advances from a factoring company, and they’ll no longer have money tied up in slow-paying accounts receivables.
As well as eliminating the wait time to get paid, trucking factoring companies offer additional factoring services and advantages. There is no new debt or bank loans with freight factoring, so it doesn’t affect a company’s credit score. Even with a bad credit history, setting up a factoring agreement should be no problem. A factoring company will sometimes offer its client access to dispatching networks and fuel card programs. Some will also offer help with making sure their new clients have established trucking authority, are compliant with industry regulations, and have active insurance policies.
The best factoring companies will offer flexible contract options to work with. The flexible terms are beneficial for large and small businesses, depending on their company needs. The terms range from month-to-month contracts to long-term contracts. The contracts are either non-recourse or recourse factoring agreements and offer back-office assistance like billing and invoicing.
How Much Do Freight Factoring Companies Charge?
Factoring companies make their money by charging clients a small percentage per invoice they send in. Some companies charge a flat rate fee for all invoices, and some offer tiered rates depending on how quickly a customer pays. Some factoring companies will also set monthly minimums on how much their clients need to factor, affecting the rate charged. There also may be additional charges that cover the choice of ACH or wires.
The biggest factors that influence factoring fees are how long the trucking company has been in business, the size of its trucking fleet, the volume of freight hauled each month, the total monthly revenue, and the length of the factoring contract. Also, the creditworthiness of the customer could affect the factoring fee. If a customer has good credit, there is limited risk when working with them. Both parties would get paid, and therefore it won’t affect the factoring fee.
Related Article: Guide to Freight Factoring Costs & Rates
Should I Choose Freight Factoring for my Trucking Company?
Without having consistent cash flow or financial bank loans, trucking companies need access to their working capital, especially if they work with slow-paying customers. Getting paid in 24 hours allows trucking companies to stay on top and manage all the industry expenses. Working with a factoring company doesn’t add any debt to trucking companies since factoring is not a loan and nothing needs to be paid back. Factoring doesn’t hurt a truck driver’s credit either.
The additional factoring services that companies offer provide truckers with connections in the trucking industry to stay loaded up with the best paying loads. Most factoring companies will offer clients free fuel cards for trucking fleets. The fuel cards offer discounts at multiple locations to save drivers money on every haul. Truckers would not need to worry about running out of money for fuel while on the road and can begin to save more on their cost per mile.
How to Choose a Freight Factoring Company?
When choosing a factoring company to work with, it’s important to do research. Understanding what to look for when choosing a factoring company to work with is key. Knowing what you want out of your factoring contract will make it easier to avoid the worst factoring companies. Some factoring companies may seem great on the outside, but once you’re locked into a contract with them, you notice all the hidden terms and fees they didn’t tell you about. The top things to look for when choosing a factoring company include:
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Same day pay to keep your cash flow consistent
-
Additional factoring services like dispatching, compliance, and insurance assistance
-
Free fuel cards with advances and discounts
-
Client representatives that are easily accessible via phone and email
-
Flexible contract options
-
Free credit checks on customers to avoid working with bad debtors
-
No hidden terms or fees
When choosing a factoring company avoid ones with unexpected chargebacks. Trucking companies should never be charged back without being told first. Also, avoid a factor if they have high monthly minimums, as these can cause issues for trucking companies who don’t meet them. Companies that only offer long-term contracts and have high termination fees should also be flagged when deciding who to work with.
Other Freight Factoring FAQs
Can my trucking company get freight factoring even with bad credit?
Your company may be eligible to work with a freight factor, even with poor credit. Since factoring is not like a bank loan, there is nothing for you to pay back. So, freight factors look at the credit history of your customers since they are who the factor is getting money from. A factoring company may decline to work with certain freight brokers or shippers if they have bad credit, as they don’t want to risk not getting paid. But, your approval may not be based on your credit score.
What is the difference between recourse vs. non-recourse freight factoring?
Typically, with non-recourse factoring, the rate will be slightly higher than a recourse agreement. The factor is incurring all the risk if a customer doesn’t pay or goes out of business. The trucking company will never be responsible for paying back the truck factor under a non-recourse agreement. This is a major benefit for smaller trucking companies who would go out of business if they were charged back.
There is no reserve account with a non-recourse program. The trucking company will receive 100% of their freight bill minus the factoring fee when they get funded. The factor will also handle all the billing and invoicing and all collections from brokers and shippers—this is value-added for smaller trucking companies that do not have enough employees to complete all the paperwork.
A recourse factoring agreement is slightly different than a non-recourse one. Firstly, the fee is lower as the trucking company is solely responsible if a broker or shipper does not pay. The trucking factoring company will not take the hit for a missed payment.
A portion of the total funding amount is held in a reserve account until the broker or shipper pays. The amount that is held in reserve is dependent on the trucking factoring company.
Typically, with a recourse factoring agreement, the trucking company is responsible for all invoicing and billing for the company. However, sometimes the trucking factoring company will offer a recourse with a billing program and handle invoicing and billing. The trucking company is responsible for making collections on the freight brokers and shippers that fail to pay.
What other services are involved with freight factoring?
On top of getting fast payments to have a consistent cash flow for your trucking business, factoring companies also offer additional services. The best factors will provide its clients with a network of partners to grow their businesses. Porter’s clients get access to a database network of 250+ of the top freight brokers to work with to find the best paying loads. Clients also get a list of pre-approved brokers and shippers, so that no one works with bad debtors who don’t pay. Most transportation factoring companies will also provide credit history checks on all brokers for free.
Are You Looking for a Freight Factoring Company?
Porter is a leading freight factoring company with the best rates in the industry, no hidden terms or fees, and access to the best paying loads. We can provide factoring agreements to all 50 states in the continental United States. To speak with a factoring specialist and get a free quote, fill in this online form or call us today at (205) 397-0934.
Factoring companies make their money by charging clients a small percentage per invoice they send in. Some companies charge a flat rate fee for all invoices, and some offer tiered rates depending on how quickly a customer pays. Some factoring companies will also set monthly minimums on how much their clients need to factor, affecting the rate charged. There also may be additional charges that cover the choice of ACH or wires.
The biggest factors that influence factoring fees are how long the trucking company has been in business, the size of its trucking fleet, the volume of freight hauled each month, the total monthly revenue, and the length of the factoring contract. Also, the creditworthiness of the customer could affect the factoring fee. If a customer has good credit, there is limited risk when working with them. Both parties would get paid, and therefore it won’t affect the factoring fee.
Related Article: Guide to Freight Factoring Costs & Rates
Should I Choose Freight Factoring for my Trucking Company?
Without having consistent cash flow or financial bank loans, trucking companies need access to their working capital, especially if they work with slow-paying customers. Getting paid in 24 hours allows trucking companies to stay on top and manage all the industry expenses. Working with a factoring company doesn’t add any debt to trucking companies since factoring is not a loan and nothing needs to be paid back. Factoring doesn’t hurt a truck driver’s credit either.
The additional factoring services that companies offer provide truckers with connections in the trucking industry to stay loaded up with the best paying loads. Most factoring companies will offer clients free fuel cards for trucking fleets. The fuel cards offer discounts at multiple locations to save drivers money on every haul. Truckers would not need to worry about running out of money for fuel while on the road and can begin to save more on their cost per mile.
How to Choose a Freight Factoring Company?
When choosing a factoring company to work with, it’s important to do research. Understanding what to look for when choosing a factoring company to work with is key. Knowing what you want out of your factoring contract will make it easier to avoid the worst factoring companies. Some factoring companies may seem great on the outside, but once you’re locked into a contract with them, you notice all the hidden terms and fees they didn’t tell you about. The top things to look for when choosing a factoring company include:
-
Same day pay to keep your cash flow consistent
-
Additional factoring services like dispatching, compliance, and insurance assistance
-
Free fuel cards with advances and discounts
-
Client representatives that are easily accessible via phone and email
-
Flexible contract options
-
Free credit checks on customers to avoid working with bad debtors
-
No hidden terms or fees
When choosing a factoring company avoid ones with unexpected chargebacks. Trucking companies should never be charged back without being told first. Also, avoid a factor if they have high monthly minimums, as these can cause issues for trucking companies who don’t meet them. Companies that only offer long-term contracts and have high termination fees should also be flagged when deciding who to work with.
Other Freight Factoring FAQs
Can my trucking company get freight factoring even with bad credit?
Your company may be eligible to work with a freight factor, even with poor credit. Since factoring is not like a bank loan, there is nothing for you to pay back. So, freight factors look at the credit history of your customers since they are who the factor is getting money from. A factoring company may decline to work with certain freight brokers or shippers if they have bad credit, as they don’t want to risk not getting paid. But, your approval may not be based on your credit score.
What is the difference between recourse vs. non-recourse freight factoring?
Typically, with non-recourse factoring, the rate will be slightly higher than a recourse agreement. The factor is incurring all the risk if a customer doesn’t pay or goes out of business. The trucking company will never be responsible for paying back the truck factor under a non-recourse agreement. This is a major benefit for smaller trucking companies who would go out of business if they were charged back.
There is no reserve account with a non-recourse program. The trucking company will receive 100% of their freight bill minus the factoring fee when they get funded. The factor will also handle all the billing and invoicing and all collections from brokers and shippers—this is value-added for smaller trucking companies that do not have enough employees to complete all the paperwork.
A recourse factoring agreement is slightly different than a non-recourse one. Firstly, the fee is lower as the trucking company is solely responsible if a broker or shipper does not pay. The trucking factoring company will not take the hit for a missed payment.
A portion of the total funding amount is held in a reserve account until the broker or shipper pays. The amount that is held in reserve is dependent on the trucking factoring company.
Typically, with a recourse factoring agreement, the trucking company is responsible for all invoicing and billing for the company. However, sometimes the trucking factoring company will offer a recourse with a billing program and handle invoicing and billing. The trucking company is responsible for making collections on the freight brokers and shippers that fail to pay.
What other services are involved with freight factoring?
On top of getting fast payments to have a consistent cash flow for your trucking business, factoring companies also offer additional services. The best factors will provide its clients with a network of partners to grow their businesses. Porter’s clients get access to a database network of 250+ of the top freight brokers to work with to find the best paying loads. Clients also get a list of pre-approved brokers and shippers, so that no one works with bad debtors who don’t pay. Most transportation factoring companies will also provide credit history checks on all brokers for free.
Are You Looking for a Freight Factoring Company?
Porter is a leading freight factoring company with the best rates in the industry, no hidden terms or fees, and access to the best paying loads. We can provide factoring agreements to all 50 states in the continental United States. To speak with a factoring specialist and get a free quote, fill in this online form or call us today at (205) 397-0934.
