For an industry notorious for long payment cycles, freight invoice factoring surely offers a great financial alternative to truckers. Instead of waiting for 30 to 90 days for shippers to pay, truckers can sell their accounts receivables to get funding in as little as 24 hours.
But like any other financial solution, transport factoring has its pros and cons. In this post, I’ll outline the major points you have to know so you can assess whether it’s the right choice for your trucking business.
What does factoring mean in trucking?
Truck factoring, also known as freight factoring, is a financial solution where truckers can sell their ARs for instant funding. In turn, the factoring company will take over to collect payments and settle the remaining balance to the trucker once the client has paid, minus the small factoring fee.
Take note that factoring agreements come in two types: recourse and non-recourse. Recourse factoring is the most common option where you’ll have to pay back the advanced amount should your client shipper fail to pay.
Meanwhile, non-recourse factoring eliminates this liability, which means you won’t be required to repay the amount, whether the shipper pays the invoice or not. However, this type of factoring usually comes with higher fees and has strict requirements. It’s best to inquire about what your chosen factoring company offers and their terms.
Pros of freight factoring
Factoring a transportation invoice has a lot of benefits, especially if your trucking business always struggles with delayed payments. Here are some of the advantages of using this financial service:
- Easy funding with no credit rating requirement. The best thing about freight brokerage factoring is that it doesn’t require you to have a high credit score. Instead, factors will look at the credit history of the client named on your unpaid invoice to ensure that they are good payors.
- Suitable for all fleet sizes. Whether you’re an owner-operator with just one truck or a fleet manager, factoring can be a suitable solution for your cash flow. Many factoring companies have huge funding capital, which means they can keep up with your growing business and invoice value.
- Fast and instant invoice funding. Whether you need truck factoring or freight brokering factoring, you’ll enjoy fast funding on your invoices. In most cases, factoring companies can fund up to 97% of the invoice amount within 24 to 48 hours.
- No need to open another loan. Instead of applying for another bank loan while waiting for shippers to pay, you can factor your invoices instead for a consistent cash flow. This way, you’ll receive the amount tied to your accounts receivable without any interest or tedious paperwork as you would with traditional loans.
- It’s more than just cash advances. Aside from funding invoices, top freight factoring companies also offer free credit checks on your shippers, dispatch services, freight accounting and bookkeeping, and so on. This way, you can streamline your finances much easier, so you’ll have more time to spend on the road.
Cons of freight factoring
As with any service, factoring also has its share of downsides. Here are some of the disadvantages of factoring services which you should consider before contacting a provider:
- It comes with a fee. Factoring freight brokers and truckers comes with a certain service fee. Depending on your choice of payment terms, this can be a fixed rate or based on the invoice amount. But if you value convenience and instant funding more, this fee is only a small sacrifice for your business.
- There’s some level of liability. In the event that your client doesn’t pay the invoice you factored, you’ll have to repay the amount back to the factoring company. This can lead to bad debts, but it’s highly preventable with rigorous credit checks.
- Involvement of a third-party. Some shippers or brokers may not like having a third-party involved in the payment process. This could potentially affect your relationship with clients. But the good news is that factoring is a widely used financial solution that many shippers and brokers use it for their transportation companies.
Do you want to know more about trucking invoice factoring?
Freight factoring for brokers and truckers is a great way to bridge the long payment cycles of the trucking industry. It offers instant funding, which allows you to cover operational expenses, such as fuel, fleet maintenance, and whatnot, without worrying about where to get the cash.
If you want to explore this solution for your business, you should contact a reliable factoring for trucking company like Factoring Express. They specialize in the transportation industry, and they can fund your invoices within 24 hours of the account approval.
Aside from that, they don’t impose long-term contracts or minimums – you can choose which invoices you want to factor and when you need them. They also offer a free 1-week trial with no hidden fees, so you can see the difference they can bring to your business with no expense on your part.
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