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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.
Freight Factoring Features
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.
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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.
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 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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