When you deliver a load, the receiving party signs a piece of paper that serves as your freight invoice. With their signature, they certify that they have received the load and that they would reimburse the owner-operator or business for the cost of transportation.
Unfortunately, it can take anywhere from a week, if you’re lucky, to many months to actually receive a freight payment after the form is signed.
What is Factoring
Truckers can use factoring to get paid much more quickly for their services while the factoring company takes care of processing and collecting invoice payments. The truck driver forfeits a small portion of the money that was owed to the factoring company in exchange for this service.
Instead of waiting 30, 60, or even 90 days for a load to be paid out, freight factoring, also known as trucking factoring, takes the invoices for the loads you run and allows you to get paid on them today. This enables a surge in working capital to keep the company operating in between the payment of invoices.
Here is a breakdown of the process:
- Driver delivers the load for the client and collects a signed invoice.
- The driver then forwards a copy of the invoice to their preferred factoring business.
- Within a few days of receiving the invoice, the factoring company advances the driver a portion of the invoice value.
- Up to 98% of the original invoice value may be paid to the driver.
- The factoring business assumes responsibility for billing and client collections.
Recourse vs Non-recourse Factoring
Recourse and non-recourse factoring are two terms you’ll come across if you decide to use a factoring company. Understanding the distinction between the two will affect how much you could gain—or lose—if you choose to work with a factoring company. Let’s look at this:
Recourse factoring providers take a smaller percentage share, putting more money in your pocket. There’s a catch, though. You are compelled to buy back the invoice if they are unable to get payment from your client. When you need to sustain your cash flow, that is a difficult predicament to be in. The likelihood is that you would be without payment for the load for an undetermined period of time if the factoring company was unable to collect on the invoice.
When compared to the alternative, businesses who provide non-recourse factoring appear like fairly nice guys. If the consumer doesn’t pay with this sort of factoring, you won’t be responsible for paying the invoice back. There is a catch once more. Non-recourse involves a much bigger percentage of the invoices value going to the factoring business. This results in a reduced cash sum for you, but it’s still preferable to the recourse factoring option where you have to pay us the full amount back.
The Application Process:
The application process for many freight factoring organizations typically just takes a few minutes, despite the fact that it involves credit and invoice checks, the disclosure of other personal and business information, and other unpleasant experiences.
Additionally, while the time it takes to receive the real advance can differ, it often takes 24 hours. Depending on the factoring business you choose, it can take as little as an hour at most. Always be cautious when completing an application to ensure it is not a formal contract because some would permit the factoring company to quickly collect on your receivables.
Is Freight Factoring Right for Your Company?
You should begin by asking yourself the following questions to determine whether freight factoring is appropriate for your company:
- Do my clients pay me in a timely manner?
- Does a shortage of cash flow hinder my ability to expand my business?
- Do slow-paying consumers affect my capacity to make timely payments to my vendors?
- Do I experience problems with my clients’ creditworthiness?
- Before I accept a load, do I know the broker or shipper will pay me?
- Am I wasting time making calls to recover debts?
Factoring Companies for Trucking Companies:
- Porter Freight Funding
- RTS Financial
- Anchor Funding
- ACS Factors
- Thunder Funding
Find more trucking resources at TruckingCompanyTools.com