How to Select the Best Factoring Company for Your Trucking Business?

 

If you’re in the trucking business, you probably know about freight factoring services. They have become a more and more common way for small business owners and trucking companies to get paid in advance.

Freight factoring gives you a chance to be paid sooner, so you can pay your truck drivers and fund working capital without borrowing. It also allows you to outsource being paid on your invoices, so you don't have to spend as much administrative time on it.

In this post, we’ll find out more about freight factoring, how it works, and what to consider when choosing the best freight factoring company.   

What is Freight Factoring?

Freight factoring, or trucking factoring, is a method of financing whereby operators and business owners can sell their unbilled invoices in advance for cash. Usually described as a business loan, freight invoice factoring sells your freight bills at a discount.

In a factoring trucking agreement, a freight factoring firm pays you a percentage of your total invoice upfront. When the invoices are due, the factoring firm gets their money back plus their fees when they are paid by your clients.

The standard time to get paid on an invoice in the trucking business is 30 to 45 days. It's good for shippers because they are not required to pay for the shipment upfront. But the system can hinder the ability of trucking firms to settle their bills and other operational expenses within a timely manner. In addition to that, it's also beneficial to give more extended terms as most clients are used to that. Factoring businesses bridge the gap in cash flow.

Freight factoring offers a solution in which truckers are paid in advance so that they can run their businesses and still offer longer payment terms to customers. If you're an owner-operator business or growing business, you might appreciate not having to concern yourself with getting customer payments.

Recourse vs. Nonrecourse Factoring

There are two types of factoring:

●  Recourse factors: In a recourse factor, you are liable for any unpaid invoice (including fees). Certain factors also allow you to replace the unpaid invoice with a present receipt of equal value.

●  Nonrecourse factors: In a non recourse factor, the risk falls on the factoring company if the client fails to pay. You have no need to pay the invoice or replace it with another one. However, lenders are more costly for nonrecourse factors since the risk is higher.

Why Freight Factoring Matters to Trucking Companies?

Cash flow is important to every company but particularly trucking companies. Trucking companies have high overheads such as fuel, repairs, and employees but can take weeks or even months to cover the services by the customers. If there was no regular payment, the firms would not be able to continue operations.

Relief to this issue is provided by freight factoring in terms of instant cash flow. Freight factoring enables trucking companies to:

●      Pay daily bills: Fund fuel, maintenance, and other daily expenditures.

●      Less hassle: Concentrate on operations rather than stressing about late payments.

●  Business expansion: Get funded swiftly, allowing companies to gain more customers and add the fleet size.

What to Look for in a Freight Factoring Company?

Your relationship with the right trucking factoring company can lead to long-term contracts, as you can factor multiple invoices with them. Thus, compare and shop around before deciding. Besides rates and fees, following are some aspects to consider while choosing the best freight factoring company.

Reputability

There are so many players within the lending business, especially for alternative lending like trucking factoring. Any website can make itself look very legitimate, so it is important to scrutinize each firm heavily.

Ensure that they're certified by the Better Business Bureau (BBB) and check out their Trustpilot rating. Review reviews. What better way to gauge a company's reliability and trust factor than from those who have utilized their service?

Simplicity

When looking for a factoring company, choose one that makes application easy. You do not need to jump through hoops to acquire a factoring contract. Moreover, the contract terms and the rates should be clear.

Avoid companies that offer complex contracts and vague terms with hidden fees. Some freight factoring companies have a minimum monthly invoice volume. This isn't necessarily a negative — just make sure you know what you're getting into before you sign.

Service

Choose a factoring company that deals with you in a fair manner. Spending some time to go through customer reviews and asking other business owners can help you know if a company offers good customer service. Ask about the procedure of working at the freight factoring company i.e.:

●      Ask about the way they interact.

●      Are they helpful?

●      Do they explain things?

●      When there is an issue, do they sort it out?

Conclusion

As a trucking company owner, you're probably tired of sitting around for weeks or even months waiting to receive payment for work already completed. Free yourself from constantly experiencing late payments on your outstanding invoices while simultaneously having to pay your drivers and fuel bills.

With the services of the best freight factoring company, trucking companies get cash in hand immediately and thus pay bills and expand without waiting for clients to settle.