What Trucking Companies Need To Know About the Freight Factoring Process

Freight factoring is an easy way for trucking companies to ensure that they always have adequate cash flow. If you are a trucking company owner or owner-operator wondering if factoring is a good solution for your business, read this quick guide. It will help you understand the freight factoring process and its benefits.

Understanding Freight Factoring for Trucking Companies

First of all, what exactly is freight factoring? It is a financial service that helps trucking companies improve their cash flow by turning their accounts receivable into immediate cash. Freight companies sell their payable invoices to a factoring company (aka a factor), which then advances a percentage of the invoices’ face value (anywhere up to 97 percent) to the freight company. The factor then handles the collection of payment from the client and pays the remainder to the trucking company once payment is received, minus a small fee for services rendered.

Services Provided by Factoring Companies for Truckers

Factoring companies like Little Mountain are here to fill the gap that trucking companies often experience between delivering a load and receiving payment. Once you invoice for a load, you may have to wait for up to 90 days before your client pays. That can lead to intermittent cash flow problems. Factoring eliminates that waiting period and provides for stress-free management of your operations and finances. The quality of our services is defined by our ability to pay quickly and provide personal service to each of our clients.

Cost of Freight Factoring for Trucking Companies

Trucking company owners have no problem seeing the benefits in freight factoring, but the question always arises: what is the cost? The answer to this question is fairly straightforward, but also unique to each client. We would typically charge a factoring fee, which we deduct from the payments we receive from your clients before transferring any balances that may be owed to you. We calculate this rate by taking the following criteria into account:

• Total dollar amount you factor per month
• Average invoice amount
• Collection period
• Diversity or concentrations of your customer base
• The type of freight you carry

Based on these factors, the rate we charge is generally somewhere between two and six percent of the total amount invoiced.

Detailed Breakdown of the Freight Factoring Process

The factoring process is generally quite fast and flows quite easily. It begins with an initial consultation and application process. Once that is approved, invoices can be factored on an ongoing basis for as long as you require.

Initial Consultation and Application

To get the process started, you can either contact us directly or fill out our online application form. It seldom takes longer than 24 hours for us to process your application. We just need to know a few details about your company so we can tailor our services to suit you. 

Approval and Agreement

Once approval is granted, we work out a personalized agreement based on the type of freight you carry, the work you do, the amounts you typically wish to factor and the length of time you are likely to use our services. Unlike some other factoring companies, we will not tie you into any strict contracts. You can stop factoring with us whenever you want, and we will not charge any additional fees.

Ongoing Invoice Submission and Funding

Once your application is approved, you can start sending us your invoices to factor, if and when you choose. We will pay up to 97 percent of the invoice amount on the same day you send us the paperwork. It doesn’t have to be that much. You can choose to take less upfront and get paid more later on, if you want. We then follow up with your client and handle collection duties. Once your client pays, we deduct our fee and pay the remainder over to you.

Typical Scenario in Freight Factoring

Here is an example that demonstrates how the process works:

• You submit invoice paperwork totalling $2,000 before 3 PM.
• Since you have chosen to receive, say, 90 percent of the face value upfront, we make an immediate payment of $1,800 on the same day.
• We will now collect your client’s payment, as per the terms you have agreed to with them – say 30 days.
• Once we receive the full payment of $2,000 from your client, we deduct our fee. In this case, let’s say that is three percent of the invoice value. Our fee is thus $60. Since we have already paid you $1,800, we owe you another $140 after our fee is deducted, which we pay to you immediately.

Advantages of Freight Factoring for Owner-Operators

Freight factoring offers several great benefits for owner-operators:

• You can generate cash flow immediately without having to wait for the payment you and your clients have agreed to.
• You incur no debt. Factoring is not a loan. You are actually selling us your invoices and freeing up money you have already earned.
• You get access to free credit checks on your customers. We will check your customers’ payment histories for you and advise you on the risk. 
• You get immediate access to a team of billing experts who will handle your entire collection process.
• You can focus on your core business, which means you will be more productive.
• You can even get fuel advances and access to our fuel card for your fleet.
• You can also improve your credit because your cash flow will improve, meaning you can pay your bills on time.

Is a Factoring Company Necessary for Owner-Operator Success?

You can run your trucking company efficiently and profitably without using factoring services. A factoring company helps you in those times when your cash flow is not as healthy as it should be. At times like that, you need a factoring company to turn your invoices into instant cash, helping you pay your bills and keep your trucks running.

Qualifying for Freight Factoring: What You Need to Know

When it comes to qualifying for freight factoring, there actually isn’t much to it. Your credit history isn’t even a consideration. All you need to do is:

• Be a freight carrier or broker.
• Have all the proper paperwork to show that you are licenced, insured, and authorized to run heavy vehicles and carry cargo.
• Work with clients who are creditworthy.

If you want to know more about the freight factoring process, don’t hesitate to reach out to us. If you are ready to start factoring your invoices now, just fill out our online application form. We look forward to working with you.