Everything You Need to Know About Freight Factoring
Let’s start off with the basics. There are different terms you will hear associated with invoice factoring, such as “accounts receivable factoring” or “invoice financing.”
These terms all mean the same thing. Invoice factoring is a process used by small to medium sized businesses to gain working capital.
When your clients don’t pay you for 30-90 days, it’s tough to pay the bills. Invoice factoring relieves the stress of waiting and provides businesses with advanced payments.
This process is a debt free solution because invoice factoring companies advances YOUR payments.
There are no debts to repay because your clients (the debtor) will pay the factoring company directly for your services.
This leaves your business able to pay bills, payroll, supplies, whatever you need to succeed and grow.
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Freight Factoring Features
Fuel Advances
A fuel advance is when a truck driver picks up a load and sends a verification to the factoring company that the load was picked up. The trucking factoring company will then advance them a percentage (usually around 40-50%) of the freight bill to use on fuel. Once the load is delivered, the remainder of the bill will be advanced minus fees. This is an option for trucking companies that are in urgent need of funds for fuel, and cannot wait until the full bill is factored after the load is delivered.
Fuel Cards
Fuel cards are similar to debit cards that are given to truckers. The trucking company can decide how much they want to go on the fuel card vs. in their checking account when they receive an advance. Truckers can then use this card to fill up whenever they need to. This alleviates some stress of not having enough funds to pay for your gas and it makes it easier on your drivers when they have the card readily accessible.
Load Boards
When you work with an invoice factoring company that specializes in the trucking industry, you get some perks. One in particular is access to load boards. This gives your business the opportunity to take on more carrying jobs. Load boards can get you in touch with brokers, and instant credit checks on your customers. This can open up your business to new connections. Now you can get continue to grow your business, get advanced funds, and advance your brand. It’s a win-win.
Step-by-Step of How to Factor Trucking Invoices:
Once you have been approved for freight factoring, you can begin the process.
1. Ship your load to your customer.
2. Once your load is received by the customer, you will send your freight bill to the factoring company.
3. Within 24-hours, the factoring company will upfront your trucking company up to 95% of the bill. The rest will be held in a reserve.
4. Once your customer has paid for the invoice, the remaining amount will be released back to you minus a factoring fee.
Freight Factoring Rates
Factoring for trucking companies is a low cost industry. There are two types of ways that fees are set up. They are either set up variably or a flat rate. For example, freight factoring companies may offer you 2% for every 30 days that the freight bill has gone unpaid. Another scenario is the freight factoring company may offer you a rate of 3% and wait on your customers to pay it.
Luckily for people in the trucking business, freight factoring has one of the fastest payout times. If your business faxes or e-mails over the freight bills to the trucking factoring company, you can get your funds within 24-hours.
How to Start Freight Factoring
Request a free quote from us and we will partner you with the best truck factoring company based on the wants of your business. The factoring company will then send you an application and ask for the following documents:
1. Aging report
2. Customer list
3. The freight bills you wish to factor
Benefits of Invoice Factoring for Trucking
- Allows your customers to pay at their leisure.
- Receive discounts on fuel with fuel cards.
- Receive the lowest rates in the industry.
- No minimum volume requirements.
- Free credit checks
- Have the ability to take on more clients.
Recourse Factoring
To put it shortly, recourse factoring allows your business to factor freight bills with less fees. In return for this, your business will be held responsible if a customer does not pay the freight factoring company for an invoice.
Your business will need to cover the cost not paid and any additional fees that accumulated to the factoring company. This option is best for trucking companies that have few customers or have never had repayment issues before with customers.
Non-Recourse Factoring
Non-recourse factoring offers higher fees with the added perk of not being held accountable for unpaid freight bills. This type of factoring does not cover ALL unpaid freight bill situations, but it does give your business the added security if something like this does happen.
It leaves your business free from eating the cost of the unpaid bills, putting you further in debt. This is suitable for businesses that have many different/new customers or customers who have left you unpaid in the past. Make sure to confirm with the factoring company on their policies.
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