A Complete Guide to Freight Invoice Factoring
Freight invoice factoring is a fast, simple way to maintain the working capital you need in order to effectively run and grow your trucking business. Whether you are an owner-operator or own a trucking company, your work calls for a constant need for cashflow. With the help of freight factoring, you can have just that. With factoring, you’ll always have funds to cover fuel, payroll, repairs, tolls, taxes, and day-to-day operating expenses. Follow this easy guide to freight factoring to learn all the details you’ll need to know.
What is freight invoice factoring?
Freight invoice factoring (also known as accounts receivable factoring or truck factoring) is the process of selling your outstanding freight bill(s) to a factoring company for a percentage of the invoice. Instead of waiting 30+ days to be paid, the sale of unpaid freight invoices for immediate funds is a way to release the money early so it can be used for vital expenses or company growth. Those in the trucking industry who use a freight factoring company can receive funds within 24 hours.
Once you’ve delivered your load, a factoring company purchases your invoices and advances your company up to 98% of the invoices’ value. Funds can be received via direct deposit or placed right onto your fuel card if you prefer. The funds can be used at your discretion. With freight factoring services, you can choose which clients you’d like to factor and how often.
Recourse Factoring vs. Non-recourse Freight Factoring
There are two types of invoice factoring programs: recourse and non-recourse factoring. Below we will break down the differences between the two along with advantages and disadvantages.
1. Recourse freight factoring– The standard structure of an invoice factoring relationship is recourse factoring. In a recourse factoring program, your company assumes responsibility if an invoice is not paid by a customer for any reason. If the invoice goes outside of its recourse period, the factor has the option to chargeback the invoice, either by deducting it from your reserve account or by withholding that amount from subsequent funding requests.
The fee structure for a recourse factoring program is typically lower and accumulates during the time the invoice remains open. Advance levels usually remain in the 70 to 90 percent range. Recourse factoring is an advantage to companies with steady, reliable payers because of the potential to dramatically lower your factoring costs.
2. Non-recourse freight factoring – Non-recourse factoring is an invoice factoring program in which there is no timeframe for your invoice to be closed. It is a “safer” alternative to recourse factoring in that the factoring company assumes a higher level of risk for unpaid invoices. Greater security does come at a price: non-recourse factoring fees are higher than recourse fees (average 3 to 5%) and are usually charged as a flat fee. Advances in a non-recourse factoring relationship may be as high as 100% of the invoice after fees because there are no additional fees for you to pay. This factoring structure can become expensive so it is important to determine if the higher rate is worth the cost.
What is the process of freight factoring?
The freight factoring process is pretty straight forward and factoring companies can get you funded quickly:
- Deliver your load as usual.
As you normally would, deliver your freight load.
- Submit a copy of the freight bill to the freight factoring company.
Along with a copy of the invoice, you may need to include a (BOL) bill of lading or proof of delivery and a rate sheet. This paperwork can be submitted easily via scans, email, or fax. The factor will verify that the work was completed.
- You receive an instant cash advance.
Once the factor verifies the freight invoice, you’ll receive up to 98% of the amount right away. As long as the invoice is submitted by a set time (typically early to late afternoon), you’ll receive cash on the same day.
- The freight factoring company collects invoice payment from your customer.
That’s right. Once you’ve received payment, it’s up to the factor to wait for customers to pay. The factor handles the invoicing and collections, enabling you to focus on your trucking business.
How are the funds from freight factoring received?
The funds can be delivered to you via ACH, wire, check, or loaded directly on to your fuel card account.
What is the cost of freight factoring?
Based on a few factors, the average cost of freight factoring falls between 1% and 5%. These factors include
- Your industry
- The volume of the monthly receivables you want to factor
- The average size of each invoice you wish to factor
- The creditworthiness of your customers
- The length of time it takes your customers to pay
Volume plays a huge part in calculating factoring rates. Larger monthly amounts factored equal lower fees. Many factoring companies offer volume discounts.
What are the benefits of freight factoring?
Constant cash flow is critical in the trucking industry. Freight factoring can benefit small or medium size trucking companies in many ways. The benefits of freight factoring are what make it attractive over other forms of financing. Transportation factoring is debt-free and the amount of available funds grows with your trucking business.
With freight factoring your trucking company can get:
- Same day funding on copies or faxes.
- Low, flat rates from 1%.
- No monthly minimum volume requirements
- No long-term contracts, no hidden fees
- Free credit checks
- Fuel advances & fuel cards
Freight bill factoring enables your company to buy more trucks, hire additional drivers, and haul more profitable loads.
Why should you consider using a freight factoring company?
Freight factoring companies offer the opportunity for your trucking business to expand and make more money. Traditional loans are much harder to get in comparison to freight invoice factoring. Factoring your freight invoices is flexible because your business size and credit history won’t affect your ability to factor.
Transportation invoice factoring decisions are based on your client’s credit and ability to pay their bills since they are the ones responsible for bill payment. Freight factoring is especially ideal for owner-operators and startup trucking companies that don’t have an established financial background to qualify for bank loans.
There are numerous reasons to begin factoring freight, but here are the top five:
- Cash on hand to cover expenses and grow business
- A virtually unlimited credit line that grows with your sales
- Factor only the invoices you need, on your terms.
- The fastest way to get cash from freight bills
- Fuel advance programs and fuel card programs make life easier for drivers
Ready to start freight factoring?
Growing in the trucking industry shouldn’t have to be hard and choosing the best factoring company to work with shouldn’t be either. Let us do the work for you. We have the resources to match your trucking company with a freight factoring company that meets all your needs. Stop waiting 30+ days to be paid for your deliveries. What are you waiting for? Give us a call today or fill out a free quote form so we will match your company with the best freight factor for your needs.