For many trucking businesses, receiving payments on time is vital to ensure that operations run smoothly. Whether your company is new to the industry or has been around for years, a freight factoring company helps you receive immediate capital and improve your cashflow. Today, we’ll explain how factoring works and demonstrate how it can benefit your trucking business.
What is freight factoring?
Freight factoring is the most efficient way to manage your accounts receivable. The factor purchases your invoices for a percentage of the invoice value and then take on the responsibility of collecting payment from your customers. Once the invoice is paid in full, they forward the remaining holdback to you less their service fee.
Typically, factors provide you with a payment of up to 98% of the invoice value upfront. Factoring fees vary for each company, but usually range anywhere from 1%-3%.
The access to immediate capital helps to keep your company finances healthy with a consistent stream of cash flow allowing you to steadily maintain or grow your business.
How long does it take to get paid by a factoring company?
Depending on how quickly you need payment and how soon you submit your invoices, you can expect to be paid within 1-3 business days. Some companies also offer same-day funding, allowing you to immediately access funds for your business when you need it the most. This is different from traditional lenders who can take weeks to approve your application before they send you a payment.
4 reasons to consider freight factoring
Getting paid faster is beneficial for anyone who owns a trucking business. Here are 4 benefits of partnering with a freight factoring company.
Quick process
Signing up and sending invoices to a factoring company is simple. Unlike other lenders, there’s no tedious paperwork to fill out where you divulge all of your business assets and wait weeks to find out if you’ve been approved, declined, or need to submit more paperwork.
Getting approved for freight factoring only takes one business day, and during that time, the creditworthiness of your customers is also checked. Once you’ve qualified for your first invoice, you can easily submit invoices through the factoring company’s client portal, making the funding process even quicker.
Shorter payment windows
Factoring shortens the payment window by funding you within 1-3 business days or even delivering same-day funding. Your business won’t be affected, even if your customer takes up to 90 days to make the payment. You’ll be able to effectively manage your business without having to worry about when your next payment comes in.
Payment from one source
The frustration of having to contact multiple customers to make payments can lead to small accounting errors and even missed payments. A freight factoring company takes the stress out of managing invoices by collecting all your payments and keeping track of each customer’s transactions for you.
Back office support
Unlike traditional lenders, factoring companies offer back-office support to streamline your operations and cut down on your administrative costs. They manage your accounts receivable, collect payments, and conduct credit checks on your customers saving you time and money better spent on growth opportunities.
Quick pay vs factoring
One common alternative many truckers consider before freight factoring is a quick pay option with their broker. Although you may think that invoice factoring and quick pay are relatively the same, there are distinct differences between the two:
Payment period
It can take anywhere from 2-5 business days to get quick pay from a broker versus a 1–3-day payment period when factoring. Most factors tend to pay within 1 business day and even offer same-day funding.
Flexibility
Brokers will only offer quick pay on their own loads and not all brokers have a quick pay option in place. Factoring provides more flexibility since you can choose which customer accounts you’d like to factor.
Additional support
Factoring handles the collection of your payments. Utilizing quick pay, however, means you still need to follow up with brokers to collect payment from them. Factoring also offers other administrative support services such as credit checks and a client portal that allows you to keep track of all your invoice accounts.
Although quick pay fees can be less costly than factoring fees, you don’t get the same administrative support and flexibility offered through factoring.
Consider both options closely to understand what works best for your business. Making the right choice depends on the needs and future goals for your business.
Get paid faster and grow your business quickly
Invoice factoring is a great option to receive immediate funding and grow your business. It gives you the flexibility you need to manage and grow your business while offering a consistent stream of cash flow. If you’d like to improve your cash flow, consider freight factoring today.
FAQ
Typically, fees run between 1% to 3%. Additional fees may apply can depending on the factoring company and terms of your agreement.
Brokers and many industries use factoring companies to collect payments, pay carriers immediately and helps businesses pay their bills on time.
No. Factoring is a simple transaction between you and the factor purchasing invoices from you. Since it’s not a loan there are also no interest charges or collateral required.
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