Choosing the Best Factoring Company for your Trucking Business
Operating a trucking business is challenging. You need access to your working capital to stay on top of expenses, but payment terms are sometimes as long as 90 days. To avoid waiting for the length of these payment terms, you can factor your invoices and access your cash fast.
Freight factoring, also known as trucking factoring, is the process of selling your accounts receivables and receiving cash for your unpaid invoices. When you work with a freight factoring company, they will advance you the cash for your freight bills within 24 hours, so you have the consistent cash flow to cover your ongoing expenses. The freight factor will then receive payment from the broker at the end of the payment terms.
When choosing a freight factoring company to work with, it is critical to find one that understands the trucking industry and provides the best services for you as a truck driver. Some important things you want a factoring company to offer are great customer service, fuel cards, good rates, and additional services to compliment your small business.
What makes the best freight factoring company?
Every freight factoring company is different. So, when choosing a freight factor, it is important to know what you want for your trucking company. Ask yourself these questions to better understand what you're looking for:
Is it a recourse or non-recourse factoring program?
Does the factor hold a reserve account?
Is there an extra fee for same-day funding?
Do you get a personal account manager?
Is billing and invoicing included in your fee?
Is there a termination fee?
Do you have contract options?
Are free credit checks offered?
Once you better understand what you want out of these questions, you'll have a better idea of what each factor offers.
Know what's essential for your trucking business
All trucking companies have different wants and needs. So, it's important to find a freight factoring company that offers different services to fit your needs. Knowing what's important to your business plan will help you ask the right questions:
Are you willing to take on the risk of not getting paid for a load, or do you want extra protection if a broker goes out of business?
Do you want all your money up-front, or are you okay with some being held in a reserve account?
Is getting funded quickly important to your business, or are you comfortable getting paid every couple of days to once per week?
Do you want flexibility in a contract, or are you happy to be locked in for a more extended period?
Do you want to bill and invoice your loads yourself, or do you want that included in your factoring services so you can focus on operating your trucking company?
Is it essential to know who is taking care of your account, or are you okay with calling a general customer service line with your questions?
Are you looking for additional services and help with fuel, finding loads, insurance, or compliance?
Your answer to these questions will help you choose the best freight factoring company for your business. These questions are specific to what a factoring program offers and should always be top of mind. If a factoring company does not differentiate between your questions, it's probably a company you would want to avoid. Freight factoring is not one-size-fits-all; it's important to work with one that meets the needs of your trucking business.
Recourse vs. Non-recourse
The main idea behind working with a freight factor is receiving immediate cash for your unpaid invoices. Deciding between a recourse or non-recourse factoring agreement is a big part of deciding which factor you will end up working with. Different sized businesses or businesses in various financial standings vary in what program they prefer to work with.
Non-recourse factoring: A non-recourse agreement protects your trucking company if your customer does not pay the factoring company. In this agreement, the freight factor incurs all the risk, so that you are not held financially responsible or charged back. Since the factoring company takes on the additional risk, a non-recourse fee is slightly higher, but its worth it for trucking companies that cannot afford to be charged back.
Recourse factoring: With this agreement, your trucking company is held financially responsible if a customer fails to pay. Because of this, the factor will hold a portion of your funds in a reserve account until the customer pays the total amount of the invoice to the factor. Since your company assumes the risk, the fee is slightly less.
Billing, invoicing, and collection calls are typically included in a non-recourse factoring agreement, but not in a recourse program. However, you can add those services on for an additional charge. Most factoring companies will also provide free credit checks on customers to avoid working with a bad debtor who will fail to pay.
Advantages of freight factoring
Quick payments: Fast payments and consistent cash flow is critical for owner operators. All factoring companies will provide you with quick payment terms, but it's important to know if there are any hidden terms. Look for a factor (like Porter) that offers 24-hour pay for all invoices, every time.
Simplicity: Without factoring, your payments are coming from multiple different brokers. With factoring, you get paid from one source (the freight factor), no matter how many different brokers you run loads for. Look for a factor that provides free credit checks on your brokers. You will know who you shouldn't run with. This will save you money in the long run.
Flexibility: Freight factoring is a lot more flexible than credit lines. When looking for a freight factor, find one that doesn't set invoice factoring minimums. This way, you can factor as much or as little as you want, and you are not penalized for a slow month.
Do your research
Lastly, before signing on with anyone, make sure you do your research on the company. What a salesperson tells you or what you read in a marketing campaign can be very different from the factoring company's daily operations. Before signing the contract, research these things:
Online reviews: What are their current and past clients saying about them? It's important to know what other people in your position think of their services.
Read the fine print of your contract: This is extremely important. Sometimes, companies like to add hidden fees or terms in their contract that can hurt your trucking business. Make sure to read everything, to avoid getting yourself into these situations. Also, make sure that the sales pitch you received matches your contract terms. Look out for termination clauses, rates, fees, and chargebacks.
Doing some research can go a long way for your trucking company's future success.
Are you interested in learning more about our factoring services? Give us a call today at (205) 397-0934 or fill out our online form here.