Freight factoring, also known as trucking factoring, is an invoice factoring service that caters specifically to the goods transportation industry. Here is a handy guide you can use to familiarize yourself with the concept of invoice factoring and its usefulness for a trucking business.
Using a transport factoring service
Factoring refers to the process of selling your accounts receivables to a factoring company (also called a factor) and receiving same-day cash for up to 95% of the invoice value. The factoring agency takes over your unpaid invoices, pays up instant cash and then follows up with your clients for payments.
Startup transport companies and owner-operated trucking businesses are increasingly using freight factoring to survive the 60/90 day payment terms that are a norm in transportation.
Benefits of freight factoring
Factoring your freight invoices empowers you to have a reliable and consistent source of instant cash that you can infuse into your business as working capital. It gives you the freedom to grow and expand your operations without depending on your customers to clear unpaid invoices.
Factoring companies that specialize in freight factoring are aware of your business’s pressing need for cash to purchase fuel, for truck repair and maintenance, and for running day-to-day operations. The simple verification and approval process allows you access to fast cash, and your credit rating has no bearing on how much cash advance you can secure.
Recourse and non-recourse invoice factoring
As the name indicates, recourse factoring refers to an agreement where if one of your clients fails to pay an invoice, the factoring company has the legal right to ask you for a refund of the cash advance paid toward that invoice—along with a penalty or service fee.
Non-recourse factoring, on the other hand, relieves the trucking company of all liability and the factor will not approach you in case a client of yours does not clear a payment. Because this means more risk for the factor, the rate for non-recourse factoring is generally higher.
Notification and non-notification factoring
Once a factor has paid you cash advance against an invoice, they will notify your client regarding the same and then go on to collect payment from them. However, some business owners are not comfortable with their clients knowing that they are using a factoring service. If you‘d rather not disclose to a client that you’re factoring their invoices, you can opt for non-notification factoring so that the factor will find an alternative to contacting your customer directly for a payment.
With hundreds of invoice factoring services out there vying for your business, it’s crucial to choose a service that offers a customer-friendly factoring package for an affordable fee. Before signing up with a trucking factoring service, check the company’s experience, read reviews and ask questions to know if they’re the right fit for you. Also, steer clear of factors that offer dirt-cheap rates but will come up with hidden charges and unexpected fees once you start using their service.