Freight factoring is a popular term in the trucking industry. It’s a financial lifesaver that allows truckers to keep delivering loads when invoices take time to get paid. If you’re new to this, you’re probably wondering, what is factoring in trucking and how does it work?
In this post, you’ll learn about freight factoring, its process, and how it can benefit your trucking business. Read on and see if it’s a good choice for your fleet.
What is factoring?
Factoring, also known as freight or trucking factoring, allows trucking invoices to be paid in advance.
Instead of waiting for up to 90 days for clients to pay, factoring companies will purchase the idle invoice. They will pay up to 97% of the invoice’s value so truckers can get their much-needed funds within 24 hours.
From there, the factoring company will collect the invoice from the client. It removes the responsibility from the trucking business, so they can focus on getting and delivering more loads.
Through this, truckers will have a steady cash flow to pay for their expenses. They don’t have to go out of pocket for fuel, maintenance, salary, etc.
Factoring is a vital service because trucking invoices rarely get paid immediately. In fact, it takes an average of 40 days for a trucking invoice to get fully paid without factoring. Even in good economic standing, trucking businesses can’t afford to wait this long every time they deliver a shipment.
Types of factoring for trucking
There are two major types of factoring for truckers: recourse and non-recourse. Both will advance your invoice payments but on different terms. Below is a quick rundown of the two:
Recourse factoring
With recourse factoring, the factoring company charges a lower fee. However, there’s a catch: you’ll pay them back if your client doesn’t settle the factored invoice.
In short, you will buy the invoice back if the factoring company fails to collect it. This means you’ll be unpaid indefinitely until your client settles the bill.
Nevertheless, factoring companies will exhaust all means to collect from your customer before invoking the recourse terms. And since they will perform a credit check on your customer before factoring, the risk of non-payment is low.
Non-recourse factoring
On the other hand, non-recourse factoring has a higher fee, but for a very good reason. You won’t be liable even if the factoring company fails to collect from your customer.
This assures you that the factored amount is yours to keep. However, the trade-off is that you have to pay a higher fee than recourse factoring.
Despite the higher fees, many trucking businesses opt for non-recourse factoring to avoid unpredictability. After all, the extra fees are much smaller compared to buying back the invoice.
How does factoring for trucking work?
Freight factoring may sound technical, but it actually has a very simple process. Here at Factoring Express, the following are the steps to get your trucking invoices factored.
- Fill out the form
Start by filling out the form on our website. You’ll have to provide us with details of your trucking business, your invoice, and the amount you need. - Receive the proposal
Once we have assessed your application, we will create and send you a proposal. This includes the details of the factored amount and the factoring terms. - Sign the offer
If you’re happy with our offer, you can sign the paperwork to submit your invoices. Our team is open to answering your questions and concerns about the proposal. - Upload your invoice
The next step is to send us the invoice you want to be factored. Once we receive it, our team will process the request, so you’ll receive the payment as soon as possible. - Receive the payment
Once approved, we will send the funds to your account. We can approve your invoice in as fast as 24 hours, so you don’t have to wait any longer.
After we collect the invoice, we will release the balance to you minus the factoring fee. There are cases when we waive the reserve requirement, depending on the load volume and your factoring contract.
Overall, the process is simple, and trucking companies can easily avail of the service. You don’t have to wait for your clients for weeks to receive funds.
Benefits of freight factoring
Factoring helps trucking businesses keep their fleet running. If you’re wondering how freight factoring can help your business, here are some of the advantages:
Better than bank loans
Unlike bank loans, factoring offers faster fund approvals without interest. Truck factoring will also protect your business from bad debts that only add financial burdens to your business.
Moreover, freight factoring ensures that your invoices are paid. Also, no bank will go after you to collect.
Guaranteed cash flow
Many trucking businesses close shop due to a lack of funds. Most of the time, their clients took up to 90 days to settle the invoice. Unfortunately, the expenses of running a trucking business can’t wait.
Good thing, freight factoring helps solve this problem by advancing a large portion of the invoice value. You’ll have a steady cash flow, so you can keep booking and delivering shipments.
No long-term contracts needed.
With Factoring Express, you don’t have to enter into a long-term contract. You can choose the invoice you want to factor – no strings attached.
This means that you can use factoring only when you need it. It gives you the freedom to grow your business at your own pace.
A strong credit score isn't required.
Freight factoring will not require a strong credit score from trucking businesses. Instead, they check the credit score of your customers to see if the invoice qualifies for factoring.
For struggling trucking businesses, this is literally a lifesaver. Factoring can help them bounce back from bad debts and payment delays instead of getting bankrupt.
Reduced administrative work
Aside from securing your cash flow, factoring also reduces your accounting tasks. The factoring company absorbs the responsibility of contacting and collecting from your customers. This way, you can focus on hauling more loads.
Moreover, factoring companies like Factoring Express will handle your paperwork, collections, and accounts receivables. You’ll save a lot of time, effort, and money instead of doing it on your own.
Free customer credit checks
Freight factoring can help minimize the risk when you take a new customer for your trucking business. The factoring company will run credit checks on your clients to see how well they pay their obligations.
This will help you decide which clients are worth booking and which to avoid. It secures your trucking business and eliminates unnecessary worries on your part.
Less stress; more income
Above all, factoring for trucking reduces your stress regarding payment collection. The factoring company will buy the invoice from you, giving you a steady income.
You can focus your energy on delivering your shipments and finding high-paying loads. Funds will be one less thing to worry about if you work with a factoring company.
Is factoring right for your trucking business?
As much as you can run a trucking business without factoring, you’ll have to endure more pain in the process.
You’ll have to build your business around the fact that clients can take up to 3 months to settle the invoices. Also, you’re bound to have catastrophic losses if a big client fails to pay.
If you can’t imagine paying out of pocket for the operation of your fleet, factoring will be your perfect partner. It upgrades your trucking business and gives you peace of mind for a small price.
No matter how small or large your trucking business is, freight factoring will set you up for success. You can cover the short-term expenses necessary to keep your business profitable with immediate funding.
After all, factoring has been around for decades, and even the largest freight companies swear by its benefits.
Get your trucking invoices paid today!
If you have idle invoices you want to get paid, Factoring Express is here to help. With us, you’ll get paid within hours, not months.
We have an extensive experience in the trucking industry, so we know your business well. We aim to help your trucking business grow with fast cash straight to your bank account.
At Factoring Express, we don’t require long-term contracts. You’re free to choose the invoice you want to factor anytime – totally up to you!
