Freight factoring is a popular but commonly misunderstood financial solution. So many myths have been widely accepted about it in the industry, that it can be hard for people to distinguish fact from fiction. This article will hopefully help to clear up some of these misunderstandings and help you choose factoring with knowledge and confidence.

Debunking Myths

The many commonly accepted myths about factoring can sometimes deter freight companies from using factoring services. Let’s dispel these common misunderstandings once and for all.

Separating Fact from Fiction

Among the most common misunderstandings circulating about freight factoring are:

- Freight factoring is the same, no matter which company you choose. In fact, the service offerings in the freight factoring industry differ quite widely from one company to another. Rates, fees, contract terms and practices can vary substantially.
- Freight factoring is complicated. The truth is that freight factoring is a fast and simple financing solution.
- Freight factoring will negative effect on my relationship with my customers. Well-established factoring companies are experts at dealing with customers and following collection procedures, so there should be no negative impact on your customer relations. In addition, most customers understand that factoring is a common practice, and won’t think less of a service provider if it chooses to use factoring.
- Freight factoring is expensive. This is a common argument, and indeed, factoring may appear more expensive than traditional bank loans at first. However, when you consider the perks and long-term benefits of factoring, it soon becomes clear that you can realize significant savings with factoring. These include fuel discounts, free credit searches, and a dedicated account manager to provide tools and advice for better operations.
- Factoring companies are only for start-ups. This is most definitely not true. Actually, factors work with both small start-ups and large, well-established fleets.
- Loe credit scores disqualify me from using factoring. When you apply for factoring services, your credit score is not even considered.

Frequently Asked Questions

Now let’s turn our attention to some of the most common questions truckers ask about factoring.

Is the factoring rate fixed or variable?

Factoring rates can be either fixed or variable, depending on the factoring company you work with. It is best to go with a more flexible factor that will vary your rates and customize your contract based on things such as the volume of invoices, the creditworthiness of your clients, your company’s financial health, the length of the factoring relationship, economic and market conditions and competition.

What fees do factoring companies charge?

Factoring fees differ slightly from company to company. In most cases, the primary fee is a small percentage of the total of the invoices you factor. However, there are other possible fees you may charged, including ACH fees, application fees, invoice processing fees, closing fees and early termination fees. Speak to your factor in detail about their fee structures and always be aware of what you are expected to pay.

Will I have to pay penalties if I terminate my factoring contract?

That depends on the factor. Some companies charge penalties and others don’t Ask about this before you sign your contract.

What is the difference between recourse and non-recourse factoring?

Recourse factoring places the responsibility on the client if one of their invoices should remain unpaid. With non-recourse factoring, the factoring company assumes this risk, though usually for a higher fee.

What collateral is required on a factoring agreement?

Factoring is not a loan, so no collateral is required. The factor buys your invoices from you and recoups that money by collecting payment from your customers.

Trust FactorTek with Your Accounts Receivable Financing

These are just some of the most common freight factoring myths and questions. If you would like to learn more, feel free to reach out to FactorTek, a factoring company based in Miami, FL. If you are ready to start factoring, fill out our application form and we will get back to you as quickly as possible.

Common Misconceptions and FAQs About Freight Factoring