The Ultimate Guide to Freight Factoring for Trucking Companies

As explained earlier, factoring involves the sale of receivable invoices to factoring companies in exchange for an immediate, partial advance, which is usually somewhere between 70% and 95%. The factoring company then takes possession of that invoice and collects payment from the trucking company’s customer, after which the balance is paid. It enables trucking companies to get cash on their invoices immediately, rather than having to wait until they fall due.

Factoring is not at all like a bank loan, although they seem similar at first. A bank loan requires a traditional financial institution to grant credit to a borrower, after a lengthy and rigorous application process. The borrower thus goes into debt upon receipt of the money. Freight factoring, on the other hand, is debt-free. The trucking company hands its invoices over to the factoring company and, while the latter does advance money to the freight business, it recoups these funds, not through debt repayment, but by collecting payment from the customer. The amount that is originally owed to the trucking company is simply transferred directly to the factoring company. The trucking business gets an instant cash injection without the need to borrow money, and without its credit history, or that of its owners, being a consideration at all.

Let’s break down the factoring process into simple steps:

1. The trucking company applies for a factoring contract.
2.Upon approval, the trucking company and the factoring company sign an agreement outlining the terms, rates, and fees of factoring.
3. The trucking company sends invoices to the factoring company.
4. Assuming that the trucking company’s customers have passed a credit check, the factoring company accepts the invoices and advances 70-95% of the total to the trucking business. This transaction usually takes place within 24 hours.
5. The trucking business can now use this cash for its operations. In the meantime, the factoring company awaits payment on the invoice from the relevant customer.
6. After receiving payment, the factor deducts a small factoring fee - usually a percentage of the total - and then pays the balance over to the trucking company.
7. This process is repeated as many times as needed, or as stipulated in the contract.

Freight factoring is a fast and easy cash flow solution for trucking companies, and offers the following benefits:

Trucking businesses do not need to wait for their invoices to become due. They can turn them into cash immediately. This helps to prevent interruptions in cash flow and assists business owners in maintaining fluid and efficient operations.

An added benefit of factoring is that the trucking company effectively surrenders the need to collect payment from its customers. The factoring company, which has the necessary staff and resources, takes on this duty. This amounts to a significant reduction in the freight business’s administrative burden. In addition, the factor also runs credit checks on the trucking company’s clients, which helps to ensure that both parties get paid.

Most factoring companies offer a number of additional advantages, including fuel advances, fuel cards, and discount programs. FactorTek offers fuel advances that are streamlined and simple. All you have to do is send your bill of lading and rate confirmation, and we advance you the funds you need to pay for your fuel for the trip. You can also qualify for a FactorTek fuel card, which you can use to pay for your fleet’s refueling expenses. In addition to allowing you to purchase fuel even when your cash flow is low, these cards also enable you to enjoy a range of discounts at participating gas stations.

There are many businesses out there offering factoring services, so trucking businesses must be extremely discerning as they select the right provider. Keep the following factors in mind as you make your choice.

Do plenty of research on all the various factoring businesses offering you their services. Take note of their rates (how much they advance to you after you have sent your invoices), their fees (what they charge you for their services - and how), and their terms (the various conditions of their contract, including early cancellations and factoring limits, etc.). Before agreeing to anything, first make very sure that these suit you, your budget and your business operations.

Of course, it is vital that you can trust your factor, so be sure to do plenty of research on them. Ask around and read online reviews. Choose only those factoring businesses that have excellent reputations and have received mostly positive reviews.

Once you have done your homework on each factor’s reputation and are well-informed about their rates, fees and terms, choose from among the ones that are most well-established, and have the best reputations. Compare their rates, fees and terms, and make sure that they are suitable for you. Steer clear of providers that offer onerous terms, and try to aim for flexibility. Remember that you want to establish a relationship with your factor.

Freight factoring is a practice that has accumulated a lot of misconceptions and misunderstandings over the years. Let’s take a look at them and find out what the truth is.

Some of the most common myths about freight factoring include:

- Freight factoring is expensive. While, at first glance, factoring can appear to be more expensive than traditional bank loans, this is actually not the case if you look deeper. Considering the additional perks, increases in efficiency and productivity, and the savings you will realize in administration and collection, you actually save in the long run.
- Freight factoring companies are predatory. This is most certainly not the case. While there may be a few unethical operators from time to time, they never last very long, and the better-established, well-known factors are ethical, regulated institutions that exist to form relationships with clients and create win-win solutions.
- Freight factoring is only for businesses in trouble. Freight factoring is actually a solution that you can - and should - employ when your business is in good shape. It is not an emergency action. It is an ongoing tool for good financial management.

These are just a few of the most common myths about factoring. Feel free to speak to us or take a look at our website for more truths about factoring.