What Is Freight Factoring and How Can It Serve Your Company?

freight factoring trucking shipping

If you're trying to make the logistics of your company smoother, it might be time for you to consider freight factoring.

When you switch to freight factoring, your invoices can get paid more easily, giving you one less thing to stress out about.

Keep reading to learn more about how freight factoring can serve your company. 


How Does Freight Factoring Work?

If you have a freight factoring arrangement, that means that a trucking company will get an advance on a customer invoice that's unpaid from a financing company. A lot of independent truckers, small companies and individuals will haul loads from a collection of shippers or a single shipper and brokers that list what their available loads are on websites.

The trucker will than accept the assignment for the load, pick up the load and then deliver it and invoice the broker or shipper. This invoice will then stay open until the trucker’s accounts receivable are paid. When you do freight factoring, the payment waiting time is cut, as there are cash advances based on a trucker’s accounts receivable.

Here's how this process works:


Application 

A trucker will apply to a freight factor company which is the factor so they can get advance payments.


Setup

Once the application is accepted, the factor and truck will link their accounts receivable software. This way, the trucker is able to select and submit their invoices directly to the factor.


Submission 

The trucker will then submit some or all of its invoices to the factor. 


Cash Advance 

The factor will then pay the trucker a large percentage of usually 85 to 90 percent of the invoice's face value the following day. The remainder will be received when the shipper or booker pays. There is some case where the factor might pay the entire invoice amount upfront. 


Fee Payment 

The fee payment usually works in one or two ways. One way is the finance company will pay the trucker whatever the remaining balance is on the invoice, once the customer pays the invoice. 

The other way would be similar to a line credit. Each week the trucker would pay fees and then repay the principal to the factor which is based on the balance of any unpaid invoices.

So this all means that if an independent trucker was to submit an unpaid invoice with a face value of $10,000 to a freight factor company. If the trucker was then was paid $9,500 the next day, this would mean that the factor’s advance rate is 95 percent.

Then once the customer pays the invoice, the trucker gets the remaining $500 on the invoice, not including any fees from the factor. Fees tend to happen weekly or monthly and are taken as a lump sum from whatever the remaining balance is.

So in a weekly repayment situation, the trucker would pay $2,000 of the advance and a fee of $47.50 (or 0.5 percent) of the week before's a balance of $9,500, the following week. Then the week after, the trucker would pay another $2,000 of the advance and 0.5 percent of the remaining $7,500 balance, which comes to $37.50. 

This process would then continue to repeat until the trucker repays the full $9,500,  and the factor would send the trucker the remaining $500 of the invoice’s $10,000. If truckers are able to repay the balance sooner, then they save money on fees.


How To Qualify For Freight Factoring

A unique characteristic about freight factoring is that factoring firms tend to be more interested in the credit of the truckers’ customers instead of the truckers’. Which makes sense since it is the truckers’ customers, who are usually brokers and shippers that pay the invoices.

So this means that you are likely to qualify for freight factoring if your accounts receivable have a steady record of cash flow that's consistent as well as an excellent probability of payment.

The business owner or trucker will need to have a credit score of at least 530. It's also important that they have a history of payments that on-time as well as a business that has been operating six months at least.

The longer your accounting history is, the easier it is for your business to be approved by a freight factor. Invoices need to have a due date that is within 30, 60 or 90 days.


Where to Get Freight Factoring

Freight factoring companies tend to be finance companies that are nonbank. Well- known freight factoring companies include Thunder Funding, Fundbox, ENGS, Oak Hill Capital Corp, Commercial Finance, and Factor Finders. Those are just a few, there are a dozen more like TBS Factoring.

If you are a large trucking company, you may want funders who have high-volume freight factoring, which means more than $30,000 per month. These would be companies like Interstate Capital or BlueVine. You may also want to consider fuel financing, as there are freight factors that will give you credit to pay for your truck's fuel.


Freight Invoice Factoring Benefits

Freight factoring gives fast cash to carriers. Medium and small-sized freight companies are able to easily secure financing that they need for repairs, fuel, repairs, payroll, and operations. These companies will get basically an unlimited credit line and won't have to perform credit checks or analyze their financial statements.

Other pros of freight invoices can include, fuel discount card, no sign-up fees, no minimum body requirements, free online credit checks, and load boards, fuel advances of up to 50 percent cash advance on load pickups, and no long term contracts. 

Freight factoring is also flexible because your credit history (or lack thereof) and business size will not impact your ability to factor. When you do transportation invoice factoring, decisions depend on your client’s credit as well the ability to pay their bills. 

This is because they are the only ones responsible for bill payment. This funding option is a perfect solution if you are an owner-operators and or startup trucking company that is lacking financial background which would qualify you for bank loans. 


Try Freight Factoring Today 

Now that you know all about freight factoring and how it can help your business, try freight factoring today! 

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