What Is Freight Factoring? The Ultimate Guide

Running a trucking company can be an overwhelming job. In addition to hiring drivers, you have to finance trucks, pay for insurance, and stay compliant. Expenses can get awfully high, and that can be hard when you are first starting out. If you need a way to improve cash flow, you may want to consider factoring. 

Factoring involves selling unpaid invoices to third-party businesses. Trucking companies sell these invoices at a small discount. The factoring company makes a small profit from each invoice, so it has more cash on hand to run its business. Trucking companies love it because they can get the money they need in as little as 24 hours. 

Operating a trucking company can cost hundreds of dollars a day. Most invoices allow 30 to 60 days for payment. If you are like most new trucking companies, you will not be able to wait that long.

Benefits of Factoring 

In addition to getting cash right away, there are many hidden benefits of freight factoring. Once you sell an invoice, you do not have to worry about collecting it anymore. It becomes the problem of the factoring company that bought it. This can be a significant benefit because sending bills and calling on collection accounts can be costly and time-consuming. 

There are plenty of companies out there that are struggling to maintain inventory and employ enough personnel to stay in business. About 60% of clients pay their invoices late. If this makes you late with your bills, you will be subject to late fees. It will also hurt your company's credit. It is better to get the money right away and take a small loss. 

What Are The Steps To Factoring?

Load Completion

Whenever a trucking company delivers cargo, they fill out a rate confirmation form. They also sign off on their Bill of Lading. 

Submit the Information to the Factoring Company

The trucking company will then submit its BOL and rate confirmation to the factoring company.

The Factoring Company Pays the Trucking Company

In some cases, they will pay through an overnight bank transfer, and in others, they can wire the money in as little as an hour. If you are an independent trucker who needs money when you are on the road, they can even send the money to your fuel card. 

The Factoring Company Gets Paid

When your client pays the factoring company, they close the account. 

What To Look For In A Factoring Plan

The factoring plan you use should offer a flat rate on your invoices; if they do not, there is a good chance you will have to pay a lot of hidden fees. Your company should be assigned a factoring specialist dedicated to handling your account. You should not have to deal with random people whenever you call in. 

Some factoring companies will try to charge you a fee for sending bills to your customer after the deal is complete.

Starting a business can be expensive and stressful but it can also be rewarding and lucrative if you have a little help financially.