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Freight Factoring Evolves with the Times

Freight Factoring Evolves with the Times

Motor carriers and brokers are increasingly utilizing a low-cost option to ensure they receive quick freight payments. The fact is, waiting 30 days or longer to receive payment on a freight transaction is often an unacceptable option for companies operating in the transportation sector. As a result, companies are increasingly looking into factoring services as an alternate option.

In many cases, as freight factoring has evolved, it has become a more inexpensive option than using quick pay systems provided by freight brokers. For fleets that do their proper diligence, it should not be hard to evaluate freight factoring companies based on the rates they charge. Some charge a five percent fee to pay within seven days, others charge a flat three percent to transfer funds on the same day.

Users want to evaluate freight factor partners based on more than just their fee structure. They also want to know: What kind of customer service experience can I expect? Do they offer seamless online factoring complete with tools and a smooth contact procedure in the event they need to speak with someone at the company? There is more to freight factoring than the simple matter of payment.

Technology to the Rescue

Factoring has generally been a last resort for motor carriers and freight brokers looking to put the move on cash receipts, with the main reason being the high fee structure that many factoring companies offer. We previously mentioned three to five percent, but that is the exception and not the norm. Until now.

Thanks to increased competition and rising market demand, the average cost of factoring an invoice has dropped. Freight factoring companies are now offering new services designed to help brokers offer payments and secure capacity, mainly thanks to enhanced digital solutions. The race to the bottom has resulted in a new fee average of around four percent.

And as freight factoring providers have developed new technologies to make their offerings more robust (such as blockchain), transportation companies and brokers that use their services benefit. But how have they done it? Thanks to advanced AI systems and algorithms freight factoring companies can now monitor various data sources that help them better determine lending risk.

By allowing for more precise analysis of available data, forward-thinking freight factoring companies can further reduce their costs. Beyond a more robust level of data analysis, factorers are increasingly turning to automated chat and text support features to increase customer service and provide immediate answers to fleets and freight brokers who have pressing questions.

Trucking companies who use these systems have access to online portals that allow them to scan bills and proof-of-delivery documents directly into the factoring system. This enables factoring operators to sometimes provide same or next-day payment services at no additional cost, simply because technology makes it easy and relatively risk-free to do so.

Once documents are uploaded into an online portal, payment can be electronically submitted to the trucking or brokerage company’s bank account, depending on the time of day the request was submitted. Advanced solutions allow for a much more organized way to complete a freight factoring transaction.

How Brokers Use Factoring

Freight brokers also use advanced factoring solutions to offer motor carriers a quick pay option. This also allows them to more effectively compete for capacity and support the growth of those they partner up with. Factoring companies looking to partner with freight brokers often will not have a minimum requirement for brokers looking to factor their invoices.

Even more, as freight factoring companies automate their systems, they can directly interface with transportation management systems and reduce – if not eliminate – the need to print, scan, or upload documents. Interoperability between systems has long been an issue with trucking companies and those providing services within the transportation sector. Advances in factoring change this paradigm.

Advanced factoring solutions allow brokers to decide how they want their shipping customers to be billed. They can either manage billing themselves or look to their factoring partners to assist them with the process. As an example, a broker with a 15 percent margin on a $900 invoice could go to their shipping partner and offer them a same-day $750 payment with a nominal three percent fee. The broker could either build in a convenience fee or provide same-day service as a value-add for their client.

Of course, some factoring companies will charge a wiring fee for this kind of service, but factoring companies who operate in a very competitive space will often do it as a courtesy just to keep the business. These same factoring companies may also offer an asset-based lending program, which operates much like a line of credit.

As an example, if a broker has 20 invoices for $500 each, that broker could borrow up to $10,000. The broker is responsible for making the payment and a normal level of interest is charged until the payment clears the broker’s account. If the broker ends up closing the line of credit, then interest will depend on the financial standing of the company.

Technology is reshaping so many aspects of the transportation sector, and freight factoring is just one of them. Whether a company is dealing in asset- or non-asset-based lending, factoring provides them with a low-cost way to cover expenses and help them grow as they wait for payment.

Factoring for the Future

Still, it is important to remember that factoring should not be relied on as a constant solution. Whether it be due to equipment acquisition or unexpected repairs, factoring is an excellent solution. Still, trucking companies want to make sure they are operating within their means and not relying on alternate financing methods to fund their business.

Freight factoring providers play a pivotal role in the industry, but they are not built to run trucking companies.  It is up to the trucking company themselves to pay close attention to their finances before committing. When the partnership is right, however, factoring can save motor carriers a lot of time and headaches.

Signing on with a freight factoring provider can be the solution a fleet needs to fill stop-gap financing problems. Of course, just as living off a credit card is not a good idea, nor is living off freight factoring. Freight factoring is still a great solution for fleets when they do their due diligence, there is no doubt about that. Focus on the bottom line and let freight factoring figure out floating invoices. It’s got you covered!

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