Basics of Freight Factoring
If you have never done freight factoring before, you may be unsure of what to expect. Here are the basics of freight factoring.
There are essentially five elements in freight factoring:
- Cash advanced
The trucker or trucking company in its day-to-day operations does a lot of things, but the most important one in terms of freight factoring is submitting the invoice to a client for services rendered. This is based on the agreement between the trucker and client upon the successful completion of the job. The “factor” or third-party company who will buy the invoice has no involvement in this phase of the freight factoring process.
The factor only becomes involved when the invoice is then sent to them for verification and approval. The freight factoring company which check if the service was indeed satisfactorily rendered and if it has been, the factor pays the trucking company the pre-agreed amount to be advanced (anywhere between 60 to 90% of the face value of the invoice). The percentage of the cash advanced will depend on the credit rating of the client. The funds advanced can be in the form of cash, check, or bank transfer between 24 to 48 hours after verification.
Depending on the agreement, the freight factoring company may or may not keep a reserve, which is that percentage of the money due to the trucker which is kept back by the factor until such time as the invoice is paid in full. At this point, the reserve amount is then released to the trucker. Some companies such as TBS Factoring do not require a reserve for non-recourse factoring.
It should be noted that not all clients will meet the requirements of a freight factoring company; a credit check is usually made on the client to determine if they are a bad risk or will provide truckers with a list of pre-approved clients. This is an advantage to truckers, who will then be able to weed out dead beat clients who will probably not be able to pay on time and in full, or at all.