Freight invoice factoring is a fast, simple way to get the cash you need to effectively run and grow your trucking business. Upfront costs like fuel, tolls, maintenance and repairs can really add up. Freight factoring has helped a huge number of trucking companies and owner operators get paid quickly for the work they’ve already done, keeping their business moving.
A topic brought up regularly in our conversations with truckers is the cost of freight factoring. Read through the following guide to learn how factoring costs are determined and how freight invoice factoring can help your business. When you’re finished, fill out this form or give us a call to get started!
Freight Factoring Costs – Frequently Asked Questions
Freight factoring, also known as truck factoring or transportation factoring, is the process of selling outstanding freight invoices to a factoring company for immediate cash in exchange for a small percentage of the invoice.
Freight factoring is a great way to maintain a healthy cash flow for your trucking business. Freight invoice factoring gives immediate access to the money you’ve already earned so you can use it to keep your business moving.
This working capital can help you buy more trucks, hire drivers, take on new loads and pay for fuel, repairs and maintenance. Freight factoring does all this without adding any debt to your business.
Factoring rates are the main expenses of factoring. These rates are a small percentage, typically between 1% and 5%, of the invoice. Occasionally there may be additional fees, like a money transfer or setup fee. These fees aren’t universally applied and will be dependent on your situation.
There are several factors that can impact your factoring costs, such as:
• Volume of monthly receivables factored- Larger volumes typically mean lower rates
• Value of the factored invoices- Higher invoice values can mean lower fees
• Your industry- Industries with lower implied risk pay lower rates
• Customer creditworthiness- If your customer has great credit, your rates will reflect that
• Time customers take to pay- Fast payment = lower rates
The process of freight factoring is quick and easy.
1. Tell us about your business by either calling us or filling out this online form.
2. We match your business with a freight factoring company that best fits your wants and needs.
3. The freight factoring company puts your business through a quick approval process.
4. Your business submits invoices for work that has been completed.
5. The freight factoring company contacts your customers, verifying your completed work.
6. Your business receives up to a 95 percent cash advance on the account receivables from the freight factoring company. They keep the remainder of the amount as the reserve.
7. Your customer pays the freight factoring company on their normal payment terms.
8. The freight factoring company releases the reserve to you, minus a small factoring fee.
The application process is quick and simple. Most freight invoice factoring applications are processed within 24 hours. Once approved, your business can get the cash you need the same day.
There are two ways to calculate factoring rates, flat and variable.
Variable rates are structured based on the length of time it takes your customer to pay their invoices. For example, you may have a variable rate of 2% for the first 30 days, with a 0.5% fee added for every 10 days beyond that.
A flat rate is a one-time fee that isn’t affected by the amount of time your customer takes to pay. Flat rates are common in the trucking industry.
Yes, there are two types of freight invoice factoring programs: recourse and non-recourse.
In recourse freight invoice factoring, your company assumes responsibility if an invoice is not paid by your customer. Though your company assumes the risk with recourse factoring, there are benefits:
• Lower fees
• Rates from 1%-3%
• Advances as high as 95%
In non-recourse freight invoice factoring, the factoring company assumes responsibility if an invoice is not paid by your customer. This lower risk does come at the cost of higher fees and rates, but because those fees are upfront, advances can be up to 100%
• Higher fees
• Rates from 3%-5%
• Advances as high as 100%
No, freight invoice factoring is not a loan. Factoring allows you access to the money you’ve already earned without taking on debt. Also, unlike the loan process, freight factoring approval is based on the credit history of your customers, not you.
Yes, start-ups are eligible for freight invoice factoring. It doesn’t matter how long you’ve been in business; if you have outstanding invoices, you’re eligible for factoring.
Absolutely! Approval for freight invoice factoring is based on your customers’ credit history, not yours. Factoring can even serve as a great way to get the cash needed to pay down debt and improve your credit.
No, you won’t be locked into a long-term contract. Just give your factoring company the notice required in your agreement and you’re free to go.
Money is typically sent directly into your account electronically by bank wire or ACH, giving you immediate access to your cash. You could even request to have funds sent directly to fuel card accounts for convenience.
To get started, fill out this quick online application or give us a call! Just answer a few questions about your business and our experienced staff will match you with the factoring company that best fits your situation. Every trucking business has different needs, and we understand that. Let Factor Finders help you start factoring today!