Freight Factoring Guide: Choosing the Best Freight Factoring Company for Your Trucking Business
Updated: Mar 16, 2020
When choosing the best freight factoring company for your trucking business you need to take the time and do your research thoroughly. If you're at this stage and you're looking for a freight factoring company, you know that trucking is expensive. You know you'll need to afford to maintain your truck, pay all your operating expenses that never stop, and that if you don't partner with a freight factoring company you could be waiting 30, 60, or 90 days to get paid - and not many people have time for that. Cash flow is critical to maintain a trucking business, which is why freight factoring is a great solution!
What's the different between non-recourse and recourse freight factoring?
Freight factoring allows you to receive immediate cash from unpaid invoices. With this money in your hand, you're able to pay for your expenses without a worry. Trucking companies can choose from 2 different types of freight factoring services - non-recourse and recourse.
Non-recourse freight factoring - In the event that your customer doesn't pay the factoring company, a non-recourse agreement will protect you. The factoring company incurs all the risk and you are not held financially responsible or charged back. There is also usually no reserve held. Your factoring company will also handle all collections and billing for you. Typically, non-recourse fees are slightly higher as the factor assumes the risk, but it's worth it for trucking companies that cannot afford the risk of a customer going out of business.
Recourse freight factoring - With a recourse factoring agreement, your trucking company is responsible for a client not paying. You will be held financially responsible and must pay the factoring company back for that payment. A portion of the payment will also be held in reserve until the customer pays. The fee for a recourse agreement is slightly lower as you are sharing the risk with the factoring company.
Most factoring companies will also provide free credit checks on your customers to minimize all risk on not getting paid for the load.
How does freight factoring work?
Once you have decided what freight factoring company you are going to work with, they will approve the brokers and shippers they can work with, and you can start factoring your freight bills. There are 4 basic steps that will take place:
You book your desired load and receive an email of a rate sheet confirming the agreed amount for the load.
A BOL is signed to confirm the pick-up. The BOL is then signed by the receiver to confirm the drop-off of the load.
Once you have dropped the load, you send the BOL, along with the rate sheet/confirmation to your factoring company. Most factors will accept you taking a picture of your freight bill and sending it that way - Porter Billing does.
Your freight bill is verified, and your factor will advance you the money (minus the factoring fee) which will be available to you typically the same day via your preferred funding method. If you have a recourse agreement, you will receive the agreed upon advanced rate within 24 hours. Then once the invoice is paid by the customer, you will receive the rest of your reserve minus the factoring fee.
What are the advantages of freight factoring?
Consistent cash flow - Consistent funding in the trucking industry is critical for success. It puts you and your business in a better position to cover all your expenses.
Quick payments - The best factoring companies will get you paid the same day you send your bills in.
Simplicity - The top factors will typically work with most brokers. This makes it easier on you as you can send all your invoices in to one place to get funded. You don't need to worry about getting additional loans if you run into difficulties, you just send extra invoices to your freight factoring company to increase your cash flow.
Flexibility - Freight factoring allows you flexible access to cash. Credit lines will usually carry a hard limit; however, freight factoring relies on the number of invoices you send in a month. When you work with the best factoring companies, you're able to send in as many invoices as you want.
Business growth - One of the biggest, and most overlooked advantages, is that freight factoring can help your business grow. You're able to afford the additional expenses of expanding your business by adding new customers and hauling more loads as you don't need to wait to get paid.
No debt to repay - Freight factoring helps you avoid taking on new debt. You don't need to pay anything back as it isn't a loan and there are no interest rates.
What makes the best freight factoring company?
Not all factoring companies are created equal. It's important to research what each factoring company offers and how it can benefit your trucking business. All factoring companies offer different services that may affect the price you pay including:
Is it a recourse or non-recourse program?
Is there a reserve held?
Do you get a personal client rep to work with?
Is there an extra fee for same day funding?
Are billing and invoicing included in your program fee?
Do you have contract length options and is there a termination fee?
Your trucking company is unique, so be skeptical of factoring companies that offer a one-size-fits-all program. You know what you want to achieve with your business, so knowing how a factoring company can help you is key. Are you willing to assume the risk if your customer doesn't pay or do you want extra protection? Is getting immediate cash important to your growth or can you wait to get paid? Do you want flexibility in your contract so you can leave any time? Do you want billing and invoicing included in your factoring fee or can you do that yourself? Is it important to you to work closely with your account rep? Are you looking for additional services like fuel cards, load finding and insurance? Asking yourself these questions will determine what factoring program you should choose to work with, if you want to work with one at all.
Do your research before you sign up with any factoring company. Look at customer reviews, read the fine print so you know exactly what you're signing up for, and check for clauses about termination, rates, fees, and charge backs.
Check out why Porter Billing is the best freight factoring company for your business here!