Have you decided to use freight factoring as a solution for your trucking business? This is a great decision for your cash flow, your business efficiency and your credit history. However, the success of your factoring experience depends entirely on the factoring partner you choose. There are many factoring companies out there, all aggressively marketing their services and claiming to offer you the best. You need to know how to choose the right freight factoring company if you are going to ensure a smooth, problem-free factoring process. Let’s take a look at the main factors you will need to bear in mind as you select your factor.
Key Factors to Consider
First things first: before you even start considering sending your invoices to a factor, pay close attention to what they offer in terms of rates, fees, terms, service and support.
Rates, Fees, and Contract Terms
Ask potential factors about their advance rates, factoring fees and contract terms. Advance rates are the percentages of invoice totals that they send to you upon receipt of your invoices. Some factors are more flexible than others in this regard, and rates can vary between 70% and 95%. You may or may not want a higher rate - it depends on your needs - but just ensure that the factor is prepared to offer the advance rate you want.
In contrast to the advance rates the factor offers, pay close attention to the fees they charge for their services. Factoring fees are usually calculated as a small percentage of the invoice total. Make sure that the charge is reasonable and affordable to you. Also, read the contract carefully for mentions of any other fees, and ask for any other potential charges to be disclosed to you before you sign.
Service Levels and Support
What kind of service can you expect from your factor? Do they provide ongoing support? Will there be a dedicated account manager assigned to you? These are all questions you need to find answers to before you commit.
Evaluating Reputation and Customer Feedback
Do plenty of research on various factoring companies before you sign any agreements with them. Choose a reputable company that is well known in the industry.
Researching Industry Reviews and Testimonials
Start by researching a handful of factoring options. Look for ones that are known for working within your industry. Ask other people in the industry about factors that have worked well for them, and read plenty of customer reviews, opting only for those with good reputations and four-to-five star averages.
Questions to Ask Potential Partners
When inquiring about factoring services, ask the candidates the following questions:
- How long have you been in operation? The longer, the better.
- Are you a bank factor or an independent factor?Â
- What are your terms, fees, and funding limits? Ask them to tell you all the fees they charge!
- How quickly will invoices be funded?
- How frequently will I be able to factor my invoices?
- How will your collections team interact with my customers?
- What is the source of your funds?
Negotiation Tips for a Better Factoring Deal
To secure the best factoring deal, arm yourself with all the relevant industry knowledge, and have a good understanding of each candidate’s service offerings and how they compare with one another.
You should also have a full understanding of your own requirements, and how each candidate’s offerings relate to them. Before starting your discussions, know what your non-negotiables are and establish your walk-away point. Where are you prepared to bend and what will make or break the agreement? Speak to your factor about fees and rates, contract terms and payment terms, keeping all your needs and breaking points in mind.
Once you know how to choose the right factoring partner, it becomes relatively easy to find the best candidate. FactorTek is a freight factoring business based in Miami, FL. We have been in operation for many years and are confident that we will be able to answer all your questions satisfactorily. Contact us for more information on our services, or fill out our online application form.
