3 Concepts To Understand About Freight Factoring

In today’s trucking and freight business, one of the most frustrating and time-consuming aspects involves companies waiting to be paid for deliveries they have already made to customers. In many cases, invoices are expected to be paid in full within a time period of 30-90 days. However, it is not at all uncommon for many truckers and trucking companies to still be waiting well beyond these deadlines to receive payment. When this happens, it can become difficult to have a steady cash flow that is needed for such important aspects of a business as fuel, repairs to trucks and other equipment, and payroll. To keep these situations from occurring, more and more of those working in the trucking and freight business are turning to freight factoring as a way to receive immediate payment for their delivered loads. If this sounds like something that could help your business, here are three important concepts to understand about freight factoring. 

Freight Factoring is Not Considered a Loan 

When many people first start learning about the basics of freight factoring, one of their first thoughts is that freight factoring is simply a different type of loan. However, that is not true. Instead, it is simply a transaction between you and a third-party funding company that is purchasing your existing accounts receivables. By doing so, the funding company then becomes responsible for collecting payment from the invoiced customers, paying you an immediate cash advance of as much as 98% of the invoice’s total. In return, the funding company collects a fee for buying the invoice, usually amounting to no more than two percent of the amount of the invoice. And perhaps best of all for an owner-operator or trucking company, if the invoices, bill of lading, and rate sheet for the load are submitted by the end of a typical business day, payment is often provided that same day through direct deposit, check, or loaded onto an existing debit or fuel card.

Credit History is Not an Issue 

As anyone who has ever applied for a loan knows all too well, much of the decision as to whether the loan should be granted is based on an applicant’s credit history. However, if you are choosing to use freight factoring, your credit history is never an issue. In these situations, the funding company will never attempt to check your credit history before issuing payment. Instead, they simply look at the credit history of the customer whose invoice they are considering purchasing from you. If they determine the customer’s credit history is such that it is likely the invoice will be paid, the invoice will be purchased from you, and payment will be made to you within no more than 24 hours at the most. In addition to this, once you become a customer of a freight factoring funding company, you will probably be issued a line of credit, which can be used to ensure any unexpected situations that may arise regarding truck repairs or other issues can be handled with no problem.

Best for Small and Medium-Sized Freight Companies 

While freight factoring can be used by companies of any size, it is usually used most by small and medium-sized trucking and freight companies in an effort to always have plenty of capital available to meet various aspects of daily operations such as fuel costs, payroll expenses, truck and equipment repairs, and other situations that may come up unexpectedly. And since the funding company often extends a line of credit as well, it creates a very flexible financial situation for the trucking company, since it will no longer have to worry about having the working capital it needs to ensure daily operations go smoothly. In addition, many other types of benefits come along with this unique financial arrangement. Some of those that are most beneficial to small and medium-sized trucking and freight companies include no minimum volume requirements, a lack of sign-up fees and long-term contracts, and fuel advances, which allow for cash advances of as much as 50% upon picking up a load.

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