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TRUCK LOAD BOARDS
Freight factoring, also called transportation factoring, trucking factoring, or freight bill factoring, is a process in which the person or business that delivers a load sells their invoice to a factoring company. The factoring company then pays the carrier the full amount of the invoice, minus a small percentage, within as little as 24 hours of receiving the invoice, rather than waiting a month or longer for a broker to pay the invoice. The time it takes to receive payment can depend on a variety of factors, but generally different companies will have different timelines for payment.
The essential point to remember is that factoring should not be confused with lending. When a factoring company purchases your invoice, that invoice belongs to the company. With factoring, drivers and businesses are able to get paid in advance and use these funds to pick up new loads without having to get a loan or incur debt.
How Does Freight Factoring Work?
In the trucking industry getting paid quick can be essential to being successful. Factoring works by turning in your invoices to your factoring company the same day and they will process it to get you paid on the invoice amount now instead of weeks down the road. This gives you the capital you need to keep your business moving forward. Like all business transactions, freight factoring works because there is an incentive for all the parties involved.
As we mentioned, the incentive for the freight company or owner-operator is immediate payment instead of long waits. For the freight factoring company, the incentive is the percentage they charge or “leave out” of the invoice when purchasing from the driver, which translates to profit when they later collect from the customer. Speaking of the customer, their incentive is that they get to deal with a company that has the financial collateral to wait for a payout rather than a small freight company that’s literally dying to get paid.
There are specific terms used in the truck factoring world that you should know:
Advance Rate – Money provided immediately to the company factoring its accounts receivable–expressed as a percentage of the total invoice amount.
Client – You, the provider of the goods or service to a “customer.” Customer – The purchaser of goods or services responsible for the paying invoice. Factor – A company that provides operating capital to businesses by purchasing their accounts receivable. Reserve – Amount of money that is not immediately provided to the company factoring its accounts receivable when the account is purchased by the factor. This is expressed as a percentage of the total invoice amount. Spot factoring – With spot factoring, the business owner can choose which invoices to sell and when. He/she is not locked into a termed contract. Recourse Factoring – With recourse factoring, your business must buy back receivables that the factoring company is unable to collect payment. Recourse factoring rates are lower than non-recourse. Non-recourse Factoring – With non-recourse factoring you’re not liable for invoice repayment if your customers don’t pay. Non-recourse factoring rates are usually higher than recourse.
Know Your Truck Factoring Rates and Fees.
Every factoring relationship features an established advance rate in combination with the factoring fee. The factoring rates for a trucking company depend on many factors including your monthly billing volume and type of program you choose (recourse or non-recourse) and the factoring fee structure. When it comes to volume, a company with 10 trucks billing $100,000 per week will likely pay a lower fee than a company with 1 truck billing $3,000 per week. Most factoring companies for trucking offer volume discounts, so your rates will come down as you grow. Know your contract terms.
Truck factoring service fees to avoid include minimum volume fees, early termination fees, and application/setup fees. There are plenty of factoring companies that DO NOT require these. When it comes to low factoring fees, we know where to find them. Our nationwide network of funding partners can get you the best factoring rates and advances and provide the most wide-ranging be
Pros of freight factoring include:
Funding is quick: With most freight factoring companies, you can receive funds for factored invoices in as little as one day, which is much faster than most conventional financing.
Qualifying is easy: Because freight factoring relies primarily on the creditworthiness of your customers, the qualification requirements for your business are minimal. Financing grows with your business: With the amount of the advance determined by the value of the invoices that you factor, the more your business grows, the more financing you can get through freight factoring.
Cons of freight factoring include:
It’s an expensive option: While freight factoring provides you with cash upfront on your unpaid invoices, a percentage of those invoices―the discount rate―is retained by the factoring company, reducing the amount that you receive for the work that you have performed. Costs increase if the customer doesn’t pay: If you have a recourse factoring agreement, and your customer doesn’t pay the invoice, you may have to buy back the invoice, and you will likely be charged a fee. Customer payments made directly to the factoring company: In many cases, by using freight factoring, you are essentially assigning your accounts receivable functions over to the factoring company; this is especially true for contract factoring agreements, where you agree to have all of your invoices included in the factoring.
Bottom Line
Freight factoring may be a good option for either high-volume trucking companies or small owner-operators with just one truck. You can use this financing method to overcome cash flow gaps or to help you take on additional projects more quickly.
