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.
Freight factoring is one way for truckers and trucking companies to instantly get paid for their work even if the freight broker or shipper they are working for does not pay them according to schedule. It is a good way to keep the cash flowing and the business going. Freight factoring is readily available for any trucker or trucking company who needs to have operating capital for their next load. It is a good investment if you want money for maintenance, fuel, equipment, employee payroll, and anything that the refight factoring can offer. With so many advantages, it may be hard to not avail of such offers, but you should know which one to choose.
One thing to look into before choosing a freight factoring provider is the speed of funding: there are those that offer payment hours after receiving the bills or invoice, while others wait until the next business day. Knowing how quick you can get funding is vital because it helps you manage the cash flow. Make sure you understand this part before signing up with a freight factoring company.
Second, make sure that the freight factoring company that you choose has employees that know about the job and are readily available to assist you should you require some help or inquire about a problem. Commercial trucks are susceptible to accidents because of their size and loads, whether it is because of interior or exterior issues. Truck accidents are more devastating than other vehicle accidents since they are significantly bigger and heavier, causing severe injuries or even deaths. Choose a freight factoring company that can assist you properly while being on the road and caters to your specific needs. Driving for long hours with heavy loads is already stressful enough; you don’t have to deal with poor service and customer support.
Lastly, check if the freight factoring offers recourse or non-recourse. Recourse could put you at risk of paying back the freight factoring company if the broker refused to pay or has gone broke. Non-recourse means the company takes the risk and you are paid even if the broker does not pay the freight factoring company or not. This option, however, may mean you pay more because of the risks involved.
With today’s challenging market, it can be hard to choose which freight factoring to go with. Although this option is a great way to help you with trucking finances, knowing the best ones that cater to your requirements is vital in order to keep the cash flowing. Survey which ones work for you and pick the one you think works best for you.