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Freight Factoring Is About More Than Cash Flow

Fleet managers and owner-operators who haven’t been looking into the benefits of freight factoring may be missing out.  New ways of leveraging this financial instrument to boost operational efficiency are emerging.

Freight factoring is loosely defined as money advanced on accounts receivables by a third party, usually for a fee. Because it’s harder for small or new trucking companies to get a line of credit from the bank, factoring gives them a fast and reliable way to maintain an operating cash flow. Without it, many would be unable to purchase freight bills.

The Growth of Factoring

Freight factoring mainly serves to speed up cash flow. Since many fleets pay for their accounts receivables on the day they complete the delivery, factoring allows them to get the cash they need to carry them through to the next load. Factoring takes the waiting out of the game.

Factoring has been playing a role in trucking for a long time, mainly due to the need for a continuous stream of operating cash flow. Over the past several years, freight factoring has grown substantially.

As freight levels rise, carriers are looking to buy more trucks and get them on the road. Some fleets are discovering that they can tap their cash flow to make large purchases and grow their businesses. For many fleets, it’s a new way to use factoring.

The Evolution of Factoring

Companies who once only provided factoring services are now starting to expand into other areas. Beyond basic recourse and non-recourse factoring, some are offering financial services to fleets, from load-matching to purchasing fuel and equipment.

Freight factoring firms have grown into full-service providers that offer their clients more than the standard cash flow management solution. Now they are providing business tools that can help streamline operational efficiency over the long haul.

The standard accounts receivables factoring has been enhanced by a multitude of other services. Together, the combination of factoring and financial services provides trucking clients with full one-stop shopping.

The Future of Factoring

As factoring providers continually branch into other areas of business, expect these services to explode across the trucking spectrum. Whether it’s for fuel discount services, invoicing and collection services, online credit-history checks, or back office support, soon factoring will be forgotten as the thing that got these operations started.

With clients being able to find loads and run free credit checks on brokers and shippers, better decisions can be made regarding what loads they haul. Fuel finder apps allow truck drivers to see the best fuel prices on their designated route. Many factoring apps can seamlessly integrate account management functions with freight planning, making operations faster and easier.

Even emergency road service is appearing as another area factoring has touched. One company is providing an emergency road service through 36,000 vendors across North America. There’s no subscription fees, though there are transactional charges. With the number of aging trucks on the road, factoring services are playing a much-needed role.

Win-Wins in Factoring

Technology is reshaping the game in almost every industry, and factoring is not immune. The technology supporting factoring is getting more and more advanced by the year. The next wave in factoring immersion is going to be in the area of paperwork.

Streamlining paperwork is on every fleet manager’s mind. Many factoring organizations are now looking to roll out load boards specifically for their customers. Becoming a full-service provider of business tools and financial services locks in long term relationships with important clients. It’s a win-win for fleet and factoring provider.

Freight factoring 15 years ago was only considered for companies that had cash flow issues. Today, it represents a normal operating option for fleets of all shapes and sizes. As the economy improves and more players enter the trucking scene, expect freight factoring providers to continue growing their business. After all, offering crucial solutions for fleets looking to enhance their business is beneficial for everybody.

How Freight Factoring Could Work for You?

We all know what freight is, but it’s when factoring is added that it gets a little complicated. The word “factor” is both a noun and a verb. In this sense the word should be taken at its definition as a noun, which is the business of purchasing and collecting accounts receivable or of advancing cash on the basis of accounts receivable.

Whether you’re a solo owner / operator or running a 50 truck fleet, the ability to control and optimize your cash flow could make or break your business. A freight factoring company will pay you a percentage and assume responsibility collecting on the invoice. There are alternatives to this method, but they’re less appealing.

Opening a floating line of credit is an option, but this carries potentially higher interest rates and comes with its own inherent risk. With freight factoring there’s no debt incurred; nor are there any monthly payments.

 

It’s also impossible to walk into a bank with an invoice and expect money to be advanced based on said invoice. To them it’s merely just a piece of paper. They feel the risk is too great to assume if the customer does not pay. This is where freight factoring fills the gap.

How It Works

The best option will always be to invoice the customer directly and wait for their payment, but many customers can be slow to pay on their invoices. For those that need cash right away, freight bill factoring provides an additional option.

Transportation factoring is quite simple. It involves nothing more than giving your unpaid freight bills to a third party for less than you’d receive if you were to bill the customer and wait. This gives you faster access to money you need to fund your day-to-day operations.

Here’s how it generally works, step-by-step:

  1. You book your load.
  2. You send the details about your customer, the load, and your rate to the factoring service.
  3. The factoring service gives you the green light if your customer is approved for load factoring.
  4. You complete transportation of the load.
  5. Once empty, you send the Bills of Lading and load-related documents to the factoring service.
  6. Within 24 hours the factoring service will advance you an approved amount, which is usually somewhere between 60 and 90 percent of the total billing.
  7. Once the customer has paid the factoring service, you receive the balance.

It should be disclosed that freight bill factoring isn’t free. As business owners, it’s up to us to determine what services are worth the cost, based on our circumstances.

Freight bill factoring costs generally float between the ranges of 1.5 and 5 percent of the line haul revenue. The factoring service is provided as a retail product, a sale, as opposed to a banking product, or a loan. The risk associated with accepting the invoice is born out in the nominal fee.

Types of Freight Factoring

Freight factoring is not created equal. There are generally two types:

  1. Recourse-based: If the customer fails to pay the invoice, the factoring service can come back to you for reimbursement.
  2. Non-recourse based: If the customer fails to pay the invoice, you still get paid.

While some options allow for a load-by-load factoring, others require that all future loads be factored through said option. Many factoring services provide you with the option to choose how the relationship develops, depending on the customer.

This allows you to also decide whether or not you want immediate payment or payment when the invoice is paid. There’s a convenience in using the factoring service as a de facto billing service.

Not every service is right for every business, but if the ideas of a high interest bank loans or negative cash flows are unappealing, freight factoring may present an acceptable alternative.

Best Inquiries on Freight Factoring: Getting to Know Your Best Options

Ready for some myth debunking about the logistics industry? Sure, it’s a gargantuan multibillion-dollar multi-corporate enterprise complete with the veins and arteries rivaling that of the human body, what with the vendors, semis, stations and bills of lading long enough to choke the heavens and suffocate the fiery pit of Hades. It’s exhausting, and many of us may think it’s the bane of our existence, but the fact is this – the trucking industry fuels our economy.

This, naturally, makes us think that all logistics corporations are these mega-giant conglomerates with the power to level a planet, very much like the Empire’s Death Star in Star Wars. Here’s the truth: logistics companies are actually quite small.

Here Are the Alarming Facts About Freight Companies

Statistics never looked as polarizing as they do here, starting with the general revenue generation we see from corporation to corporation. This is a $255B-year enterprise with over 500K companies out there in the U.S. doing business for multiple other corporations requiring logistics. Did you know, though, that….

  • 4% of Those Trucking Companies Have Less Than 28 Trucks?
  • Or How About the Other 96% Having Less?
  • Even More Staggering, 82% of All Companies Actually Have 6 of Fewer Trucks

The industry doesn’t seem that ‘big’ now, doesn’t it? It’s like comparing dinosaurs to fire ants. What you have to understand, though, is that a colony of fire ants can probably do that much more damage than a triceratops can thanks to the overwhelming numbers. It makes sense.

Knowing That, How Do These “Small” Freight Companies Then Stay in Business?

It’s a good question, because as entrepreneurial as we may be, everyone knows how hard it is to ensure payments stream in. It’s a lot easier to send an invoice than to receive one, and no one knows that better than a logistics company. Those bills are hefty –

  • They Pay for Petrol
  • Drivers’ Salaries
  • Health Insurance
  • Repair and Maintenance
  • Operations
  • Technology

Rightly so this logistics industry is a big one! Likewise, companies might have trouble maintaining those bills, and a lot of times these small logistics businesses will spend more time chasing after invoices over driving to destinations, and it is unfortunate. How do they maintain operations, bill payments? It’s simple: it’s called freight factoring.

The Idea Behind Freight Factoring

Bank loans are a major hit or miss for logistics companies, plus they often can’t wait the 30 to 90 days for collection of invoices, because by then, bills need to be paid, trucks need to be maintained, and drivers need to get to hospital for many cases of accident claims or highway hypnosis. It’s not pretty.

However, ‘freight factoring’ solves the problem nicely, and it’s just one of the ways a smaller trucking company can eliminate wait times for invoice payment, creating a continual cash flow even when clients don’t pay right away.

A freight factoring company actually doesn’t have a thing to  with logistics. There are no trucks. No drivers. Rather, what this kind of company does is collect all invoice payments for you and then pays you 70% or more upfront. Once all the invoices have finally been paid, the factoring company then pays you the remainder, minus a factoring fee, and that fee often runs anywhere between 1% to 3% of the dollar amount. That’s not a bad deal.

It’s like a cash advance, basically, and we all know how that stuff works. There’s a risk. This is why it’s important to always inquire about freight factoring company’s policies, just to make sure that the company is the right one for you, because there are a variety of payment structures to consider. Which one’s the right one for you is the question.

  1. How quickly can you get funding? – Always ask this question. Freight factoring is just as competitive as freight delivery, so start shopping around by seeing how expedient companies are. Look for “same-day funding” or “next-day funding.” Others will only fund your invoices after verifying customer bills, and that can take more than a couple of days, so be selective.
  2. What kind of service do you provide? – Know what their operations are like. If they have live communications, perhaps a 24-hour call service, you might have a contender there. Customer service has to be at its premium. If not, move on to another option.
  3. What about credit protection? – You have to know that there are two different types of ‘factors’: non-recourse, and recourse. Recourse factor companies will send chargebacks to you for all unpaid invoices. Non-recourse factor companies will actually protect your credit in the event clients don’t pay those invoices. That’s good for you, meaning you’ll still get paid even if the invoices don’t. A company offering this service, though, will obviously end up costing the logistics corporation more, so weigh your options carefully.
  4. How much do I get advanced, and how much do you hold onto? – The fees vary. Just know that. This is shopping. Picture you, the logistics CEO, at the store, shopping for the best can of soup to buy. You have a budget, so you want to cut corners and go with the sale prices. It’s the same thing here in this logistics business. Be price savvy and thrifty (but to a certain point, obviously).
  5. How much will it cost to use your services? – Again, it’s all about competition. Some companies will charge more, some less. It’s all based on sales volume, number of invoices, number of customers, the contract period and other variables. Do your homework. Factor in the costs on your end and see if you still come out on top with some ROI to boot.
  6. How do you carry out credit checks? – This is insanely important, as credit checks are a must with freight factoring companies. They need to know that your customers will pay, and there’s no better way to measure that than with a credit check. Know how your freight factoring company does those credit checks, because it’ll determine if that factoring company will even work with you.
  7. How much of the billing do you handle? – A big part of the appeal of freight factoring is its all-inclusiveness. Many will simply handle everything for you, not just paying you. They’ll do the billing, and if you shop right, some will actually do the invoicing for you, saving you more time and money in your own operations. These are all factors that you have to take into account, plus the fees, and then crunch your own numbers to see if there’s a good investment there.
  8. What are your requirements for invoicing? – There are some special fine prints, written between the lines, for many freight factoring companies, so find out if you’re allowed to specify which invoices you want to factor, or if you have to do a ‘blanket’ contract. Find out, too, if the company will charge on the gross amount or the net amount.
  9. How long is the contract period? – Some companies are flexible, and some aren’t. Know what you want. Many contracts will go for as little as 3 months and as long as 36 months, and everything in between. Others will give you the option to cancel at anytime. Which one would you prefer? That’s the big question to ask…

So Many Choices, so Many Deliveries to Make

Those are your nine top inquiries. Consider them carefully. It’s a lot of work and consultation, yes, but it’s all worth it in the end. The fact is this – you can afford to pay a fee to ensure your invoices get paid on a timely basis, because for you, the logistics company, time is money.

Just make sure you work with the right freight factoring business. The wrong one can end up being just another expense you can’t pay thanks to the fact that you’re still waiting on your clients paying your invoices.

How to Choose the Right Freight Factoring Company?

The trucking company owners out there know that keeping the finances of the business steady can be really hard task when working with various clients who often postpone or miss payments. On the other hand, consistent cash flow is really important because of the serious costs related to providing truck services. While the company is waiting for payment of the latest invoices, it has to pay on its turn – fuel, taxes, payroll, uniforms, insurances, licenses and fees, support and maintenance for the trucking software system, occasional repairs of the fleet etc. etc. Because of all the troubles this constant discrepancy in incoming and outgoing payments causes, there is a need of a practical solution and, fortunately, this solution has been around for quite a long time – freight factoring.

Today most owners of trucking companies who have been experiencing financial problems are aware of freight factoring and its advantages, but may lack some experience in choosing a proper factoring company. Of course, when it comes to the finances of your trucking company, you would not want to trust any company without serious proof that a cooperation will be safe, beneficial and smooth. Therefore, the aim of this article is to prepare you for the process of choosing a financial partner that will help you stabilize your cash flow and run your business without having to wait for the next payment. Generally, the appropriate freight factoring company will answer to a number of the criteria below, so make sure to research, ask and find out more before signing any contract – this may save you a lot of money, time and troubles.

Rates

As you probably know, every freight factoring company will charge you for its services. Therefore, it is crucial that you compare the rates of the different companies you consider to work with. Of course, there are also other things you should pay attention to, but rates are really important, because the payment you receive from a given client is not net profit – you will have to use part of it to pay your expenses and fund future projects. This means that if the rates of the freight factoring company are too high, you may end having no profit at all, which makes providing the service meaningless in the first place. In short, when looking for a company to help you with your finances, make sure that company offers competitive rates for the services it provides.

Experience

When you are dealing with the finances of your trucking company, you are probably expecting to work with a freight factoring company that knows what it takes to provide seamless services. New and inexperienced financial companies may find it hard to work with you, especially if the co-operation requires really large sums. The best solution of your trucking business, especially if it provides services to a great number of clients, is an experienced transportation factoring company or financial institution that has the know how and the solidity to provide services of this variety. Of course, all necessary and required licenses, registrations etc. are non-negotiable and absolutely essential for you to even consider working with a given company. An advantage, of course, will be if it specializes in freight factoring – you can check if it has been endorsed by any Trucking Association and knows how to deal with a trucking business.

Reputation

Even if the trucking factoring company has the necessary experience and offers competitive rates, you will have to carry out your small research that will show you whether its former clients are satisfied with its services. If you know people who have worked with this company, make sure you ask for their opinion and feedback. And, of course, don’t forget to check on the Internet – nowadays this is the easiest way to check the reputation of any company. If there have been some fouls in the past of the company you are researching, they are sure to come out in a simple web search. This is a basic way to protect yourself from inadequate services – choose carefully if you want to become one of the many happy customers, not join of the dissatisfied or angry ones.

Flexibility

The terms and conditions of the different trucking factoring companies vary, but it is worth noting that some of them will agree to work with you only if you agree to factor all of your clients. Of course, this may not be what you want as some of the customers are bound to pay on time and it is no worth paying rate to the freight factoring company for them, too. So when you are choosing a freight factoring company, make sure to check if there is a requirement for a minimum volume or number of invoices per month. On the other hand, if it is better for you to know that you have a steady cash flow that you can easily calculate (just subtract the freight factoring company fee), you can sign for factoring all your invoices – this is your choice, but make sure you calculate how much it would cost you before deciding to go for it.

Fast operation

Imagine hiring a company to factor your invoices and waiting with days and weeks to get the money – it is meaningless. Before you start working with a particular transport factoring partner, you will need a prove that you will get the money in 1-2 days, if possible – in under 24 hours. Make sure to ask about the payment conditions and the ways of transfer – cash, bank transfer, online transfer, check etc. Then consider the best options for you – if you conduct your business online, maybe it would be easier for you to get an online payment. If you are using more traditional financial system a direct debit or check may be the most adequate decision.

Fast Approval

Before you get to the phase when you will receive money, however, you will also need to be approved by the company you have chosen. Some freight factoring companies may check the credit history of your company and the credit files of your customers – this is to be expected because if one or more of your customers fail to pay, the company will endure significant losses. So all this is understandable, but you will have to make sure that it will be carried out as fast as possible. Find out how long does it takes for a company to be approved and decide if you have that time or not.

Recourse vs. Non-Recourse

When it comes to freight factoring, it is important for you and your company to find out whether financial partner you want to deal with offers a recourse or a non-recourse agreement. Recourse agreement means that you will have to buy back all the invoices that are not paid after a certain period of time. On the other hand, non-recourse agreement is one in which the transportation factoring company takes all the risk and you don’t bear any responsibility about the payment after you sell the invoices. Again, it is your decision, but have in mind that a non-recourse agreement is absolutely risk-free and can save you a lot of money and problems in case of a bad client.

Customer Service

Once everything above is discussed and agreed on, you will start actually working with the freight factoring company. This means that they will have to provide you with superb customer service. The best thing you can have is 24/7 contact with them so that you can find out what exactly happens with your money any time you want. It would be good if there is someone who is at your disposal and can arrange a face-to-face appointment or a phone conversation whenever you need information about or help with the factoring. All in all, you are not looking for a 5-star hotel, but you still need the staff of the company to be there for you when you need them.

In short, there are a lot of factors to consider when choosing a freight factoring company, but it is essential that you skip none of them because they will guarantee you appropriate service at competitive rates. If you ever reach the point of your business when you need factoring, make sure to take your time and make some good research on the different options you have. Only this way you will be able to stabilize your finance, provide your trucking company with steady cash flow and get back to business without bothering about money.

The History of Invoice Factoring

Invoice factoring is one of the oldest, and one of the most misunderstood business practices.  Invoice factoring is a method of easing cash flow for businesses to operate while awaiting payments owed.  A factoring agent, often a bank will provide a cash advance to a business that is owed money, usually 70%-90%.   When the invoice is paid, the factoring agent remits the balance of the invoice to the business, subtracting a fee for the service.

Originally appearing in the time of the Ancient Roman Empire, merchants would hire collectors to settle trade debt.  When a spice merchant traded his goods with a silk merchant and the trade was a bit imbalanced, collectors would provide the side, which was shorted in the trade with a cash advance minus a small fee, then collect the debt from the person who owed.

Through the centuries, invoice factoring evolved.  Early settlers in America used factoring agents to sell cotton and tobacco around the world.  They would ship their products to England, and an agent would sell and collect for their goods around the globe, collecting a fee for his services.  English merchants and traders would do the same using American factoring agents.

As America and her economy grew, factoring agents were able to concentrate on domestic business.  All over the east coast, the industry grew significantly through the centuries.  Throughout the 50s-70s, the number of factoring companies, which through the years had ballooned into the hundreds, had consolidated and merged to the dozens.  Banks and other financial institutions began offering factoring services to businesses all over the country.

Over the last two decades, independent factoring agencies have become more popular, focusing on a variety of industry niches.  This has created a market where large banks and factoring agencies are focusing on traditional factoring companies and industries, while smaller companies are creating new paradigms and businesses.

Today, many long-haul trucking companies and owner-operators are dealing with the problem of clients not paying on time, and being left unpaid for work already completed.  A qualified freight factoring company partners with truckers, ensuring that they’re paid for the work that they’ve done.

Sometimes, trucking companies turn to factoring agents to alleviate cash flow problems.  When dealing with larger companies, sometimes payments can be sporadic.  Factoring allows companies to maintain regular cash flow to operate in the regular day-to-day operation of a trucking business.

Freight invoice factoring companies help millions of owner operators and freight companies maintain a consistent cash flow and grow their business each year.  It’s often as simple as sending invoices via email or fax to the factoring agent and receiving cash in just a few days to run your business.  Freight factoring is often dependent upon the creditworthiness of a company, and information to that nature should be verifiable.  Contact a freight factoring agent today to learn more.

Many successful owner-operators and freight trucking companies rely on factoring agents to ensure routine maintenance, fuel, and operation of their business.

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