How Does Freight Factoring Work?

How Does Freight Factoring Work?

Bill of Lading is signed on pickup and delivery.

Is freight factoring worth the commission? If you’re a truck driver and you want to get paid for your deliveries immediately, then the answer is yes. If you’re looking to have more control over your cash flow, freight factoring can be extremely useful, because it takes the task of bill collecting off your hands and gets you paid right away. If you’re a fledgling or small business, and have other expenses looming, getting paid the day after you deliver can make it possible to continue operating. You may even have loans or debts from starting your business that need to be paid.

Regular payment schedules for freight deliveries can take 45, 60 or even 90 days. This can make it difficult or even impossible for smaller businesses to stay afloat if they’re relying on income to cover things like payroll, fuel, and vehicle maintenance. A freight factoring company acts as the middle man, pays the delivery invoices quickly, usually within a day, and takes a commission. Then they take care of collecting the full balance from the client. Freight factoring fees can range from 1.5% to as much 5% depending on volume and industry. 

If you’re a trucking company without a lot of capital, this solution could make a huge difference in how you do business. At its most basic level, freight factoring is a way to get paid fast, pure and simple. But it can also translate into a great way to grow your business. Managing your books can be extremely difficult if you’re waiting months to get paid for each job, particularly if you’re just starting out. Additionally, if you have a client who drags their feet when paying, you will have to waste time hounding them to pay their invoice. That time could be better spent developing your business, adding to your fleet, or enhancing other services.

However, an untrustworthy client may make it difficult to get a freight factoring company to represent you. Although most factoring companies don’t use your credit rating to decide to work with you (small or new businesses may simply not have the capital to have a worthy credit rating yet), they do take the credit history of your clients into consideration. If they feel they won’t be able to collect their payments from your clients, you’re on your own. Some trucking companies and car haulers only choose to work with freight brokers that are pre-approved by factoring companies. Another option to consider is non-recourse freight factoring, which guarantees payment even if customers don’t pay their bills. Non-recourse factoring is more expensive but does provide additional guarantees.  

Freight factoring companies often offer additional services, like fuel discounts, back-office support, and other loyalty services. Many also require a certain volume of business each month, so you’ll want to explore all your options before choosing a factoring company. As a small company the factoring fees can quickly add up to negatively impact your bottom line. Other options to consider is working with brokers that offer quick pay and fuel advances for a small fee.  At RCG Logistics we pay all of our car haulers within 5 business days at no charge.  

 

 

Some freight factoring companies without a minimum volume requirement are:

FleetOne Factoring

Thunder Funding

CR England Factoring

RTS Financial

TBS Factoring

 

About the Author: Alex Marinov

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Alex Marinov is the president of RCG Logistics LLC, with years experience in the shipping and freight industry. His main interest include sustainable building design, video production and automobiles.

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4b586afda56310883a7cce9efc036e95?s=54&d=wavatar&r=pg
Posted by
Alex Marinov
Post Date
10/22/2015

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