Hot Shot Factoring – Frequently Asked Questions
What is hot shot trucking?
Hotshot trucking is a category of trucking that involves hauling time-sensitive loads. Hotshot truckers typically use a midsize pickup truck with a detachable trailer. Carriers haul smaller freight to a local or regional destination for a single customer. Hotshot truckers must have an Operating Authority (MC number) in addition to a DOT number
What kind of vehicles are used for hot shot trucking?
One-ton or three-quarter-ton pickup trucks containing a flatbed trailer connected to the back are the best hot shot trucks. Consider using trucks that are equipped to pull larger trailers.
What is invoice factoring for hot shot truck drivers?
Freight factoring, also known as transportation factoring or truck factoring, is the process of selling your outstanding freight bills (accounts receivable) to a factoring company for a cash advance. To understand how invoice factoring work, it involves selling your outstanding invoices to a factoring company, which then advances a percentage of the invoice amount while assuming responsibility for collection. The factoring company advances a percentage of the invoice amount upfront, which can be as high as 90%, and then collects the payment from the customer, remitting the remaining balance to you after deducting their fees.
Definition and Benefits of Invoice Factoring
Invoice factoring is a type of business financing that involves selling unpaid invoices to a third-party factoring company at a discount in exchange for an advance of cash. This method of funding allows businesses to access fast capital to manage cash flow issues or cover short-term expenses.
The benefits of invoice factoring include:
Quick access to cash: Invoice factoring provides businesses with immediate access to working capital, allowing them to meet their financial obligations and invest in growth opportunities without waiting for customers to pay their invoices.
Improved cash flow: By selling unpaid invoices, businesses can enhance their cash flow and reduce the risk of late payments from customers, ensuring a more stable financial situation.
Increased flexibility: Invoice factoring allows businesses to choose which invoices to factor, giving them more control over their cash flow and financial management. This flexibility can be particularly beneficial for managing seasonal fluctuations or unexpected expenses.
Reduced administrative burden: Factoring companies typically handle the collection of payments from customers, which reduces the administrative burden on businesses. This allows business owners to focus on core operations and growth rather than chasing down payments.
What is the process of freight factoring for hot shot truckers?
The process of hotshot factoring is simple: 1. Tell us what your hot shot hauling needs are. 2. We match you with a freight factoring company who best fits your needs. Invoice factoring companies emphasize the importance of transparency and have different credit assessment processes, with some using advanced technologies to evaluate businesses based on their financial data. 3. The factoring company takes you through a quick approval process. 4. Haul and deliver the hotshot load as usual. 5. Submit a copy of freight bill(s) to factor. 6. Receive your cash advance within 24 hours.
How long is the process of freight factoring for hot shot haulers?
The transportation factoring process is far more simple and much faster than traditional financing. The initial paperwork process is easy and generally only takes 3-5 days for approval. After that, you can get paid for factored freight bills in as little as 24 hours.
Do I have to factor all of my freight bills?
No, with our freight factoring programs, the client has choice to only factor the invoices you wish to.
Are there different kinds of factoring companies for hot shot trucking?
There are two types of factoring that hotshot truckers can choose from, recourse and non-recourse. In a recourse factoring agreement, your trucking company is responsible for payment of the invoices that are not paid by your customers after a period of time. In a non-recourse factoring agreement, the factoring company assumes the risk of non-payment if your customer fails to pay the outstanding invoices. If you don’t want to take on the risk of liability, non-recourse hot shot factoring may be your best option.
Invoice discounting, unlike invoice factoring, is a more confidential process where businesses can access funds from unpaid invoices without notifying their customers. This method allows for greater privacy and can be beneficial for maintaining customer relationships.
How much does factoring cost?
There is no “one size fits all” way of calculating invoice factoring cost. Factoring rates are calculated based on a number of factors including the volume of the monthly receivables you wish to factor, the creditworthiness of your customers, and the length of time it takes your customers to pay. Learn more here.
What are the benefits of freight factoring for hot shot haulers in terms of cash flow?
Factoring is a great way to maintain a healthy cashflow for your trucking business. Small business owners can leverage invoice factoring to manage cash flow issues due to delayed payments on invoices. While hot shot hauling has its advantages, the business itself can be unpredictable. Having to wait 30-60 days to be paid by the customer can prevent a trucker from being able to haul the next load. With the working capital from invoice factoring your hotshot trucking company can haul more profitable loads, hire more drivers, pay for maintenance and repairs and have cash for whatever else you need. Freight factoring also leaves hot shot haulers debt free.
Is freight factoring a loan?
No, freight factoring for hotshot hauling is not a loan. Invoice financing is a fast and efficient method for businesses to access funds by leveraging unpaid invoices. Loans add debt to your books. You borrow money from a bank/lender you are expected to pay back with a typically high interest rate. With invoice factoring, you aren’t occurring debt your selling valuable assets. Loan approval is based on the credit of the borrower vs freight factoring which is based on the credit history of your customer. If you are denied for a bank loan, freight factoring could be your big break to get paid.
Can I qualify for hot shot factoring with poor credit?
Yes, you can still qualify with poor credit. The eligibility for freight factoring is based on the credit worthiness of your customer, not you. This is because the customer is the one who is responsible for invoice payments. In fact, freight factoring can help improve your credit score by giving you the cash flow to pay off debt.
How long do I have to be in business to qualify?
EZ Freight does not have any requirements involving the length of business operation. Startup auto hauler companies are welcomed. In order to be qualified for truck factoring, your company needs to have unpaid invoices.
Are startup hot shot trucking companies eligible for freight factoring?
Yes, startups are eligible for hot shot factoring. As long as you have outstanding invoices, you can qualify for factoring.
Will I be locked into a long-term contract?
No, with freight factoring auto haulers are not locked into long-term contracts. If you want to get out, you’ll need to give the factoring company a noticed based on their terms.
How is the money sent to me?
Money is typically sent directly into your account electronically by bank wire or ACH. Direct deposit and wire transfer provide immediate cash. Clients can request to have funds sent directly to fuel card accounts.
Choosing the Right Factoring Company
Choosing the right factoring company is crucial for businesses looking to benefit from invoice factoring. Here are some factors to consider:
Reputation: Research the factoring company’s reputation online and ask for references from other businesses. A reputable factoring company will have positive reviews and testimonials from satisfied clients.
Experience: Look for a factoring company with experience in your industry and with businesses of similar size and complexity. An experienced factoring company will understand the unique challenges of your industry and be better equipped to meet your needs.
Fees and rates: Compare the fees and rates offered by different factoring companies to ensure you are getting the best deal. Be sure to understand all costs involved, including any hidden fees or penalties.
Customer service: Consider the level of customer service provided by the factoring company, including their communication style and responsiveness to queries. A factoring company with excellent customer service will be more supportive and easier to work with.
Flexibility: Look for a factoring company that offers flexible terms and conditions, including the ability to choose which invoices to factor. Flexibility in the factoring agreement can help you better manage your cash flow and financial planning.
The Factoring Agreement
A factoring agreement is a contract between a business and a factoring company that outlines the terms and conditions of the factoring arrangement. The agreement should include:
The factoring company’s responsibilities: The agreement should clearly outline the factoring company’s responsibilities, including the collection of payments from customers and the provision of funding to the business. This ensures that both parties understand their roles and expectations.
The business’s responsibilities: The agreement should also outline the business’s responsibilities, including the provision of accurate and timely information about invoices and customers. This helps maintain transparency and smooth operations.
Fees and rates: The agreement should clearly outline the fees and rates charged by the factoring company, including any discounts or penalties. Understanding the factoring cost is essential for managing your finances effectively.
Term and termination: The agreement should specify the term of the factoring arrangement and the conditions under which it can be terminated. Knowing the duration and exit terms of the agreement helps in planning and decision-making.
Confidentiality: The agreement should include a confidentiality clause to protect the business’s sensitive information. This ensures that your business data and customer information remain secure.
By understanding the definition and benefits of invoice factoring, choosing the right factoring company, and carefully reviewing the factoring agreement, businesses can ensure they get the most out of invoice factoring and improve their cash flow and financial management.
How do I get started?
To start the freight factoring process, fill out our quick online application or give us a call. Simply answer a few questions and we’ll match you with a freight factoring company that fits your hot shot trucking business wants and needs.
Learn more about hot shot loads.
