Freight Factoring: A Solution for Trucking Companies Denied a Bank Loan
Carriers and trucking businesses have a hard time getting approved by a bank for a small business loan. Banks think trucking is an unstable industry, and therefore trucking companies cannot rely on them to provide working capital solutions. Luckily, trucking factoring, also known as freight factoring, is a business financing solution for trucking companies needing consistent access to their cash flow.
Why banks won't work with most trucking businesses
Even pre-pandemic, bank loans were becoming even more inaccessible for trucking companies due to a declining freight market. During the COVID-19 economic shutdown, the federal government announced a program with low-interest loans to small business owners to keep businesses afloat. However, the program was underfunded, and banks provided very little support.
Bank loans will become even harder to be approved during the recovery of the economy as customers' financial stability is also at risk. Customers' payment terms will be delayed due to the stressed market, which banks see as unreliable on a credit report.
Freight factoring is the solution for trucking companies
The advantage of freight factoring for trucking businesses is that it is not a loan; it is a cash advance. Trucking factoring is when the factor purchases your accounts receivables and advances you the cash amount of your unpaid invoices within 24 hours. The trucking company sells its invoices at a discount in exchange for immediate payment from the freight factor.
Freight factoring companies provide owner-operators with consistent cash flow. This puts trucking businesses in control of their cash flow to stay on top of expenses and not have to worry about unpredictable payment terms following the freight loads delivery. Once the freight bills are submitted, the trucking company receives instant access to cash.
What is freight factoring?
Freight factoring is a reliable and fast source of business financing for trucking companies. The trucking business sells its unpaid invoices to the factor, who then advances the cash amount within 24 hours, minus the factoring fee. This process provides trucking businesses with consistent and improved cash flow.
Trucking companies that don't use freight factoring typically have to wait 30, 60, or 90 days to get paid for a load they hauled. Trucking factoring speeds up this process so that businesses can stay on top of expenses and expand.
There are two types of factoring agreements - recourse and non-recourse factoring. With a non-recourse agreement, the factor assumes all the risk. If the customer fails to pay, the factor takes the hit. This is beneficial for smaller trucking companies and those who can't afford to be charged back. It's the opposite for a recourse agreement. If the customer fails to pay, the trucking company is responsible for paying the freight factor back.
What is the factoring process?
The process of freight factoring is simple.
Deliver the freight load: Book a load and get a rate sheet. A BOL is signed at both locations to confirm the pick-up and drop-off of the load.
Send in your paperwork: Send the BOL and rate sheet to your freight factor to get paid.
Get paid in 24 hours: You will be advanced your total invoice amount, minus the factoring fee, within 24 hours of submitting your invoices.
The freight factor gets paid: The customer will pay the factor at the end of the payment terms.
If you have a recourse factoring agreement, a portion of funds may be held in a reserve account until the factor is paid. Upon payment, you receive the rest of the money.
Advantages of freight factoring
A huge advantage of freight factoring for trucking companies is the speedy approval process. Instead of waiting weeks as a business loan applicant, a freight factor can approve you in as little as one business day. Once you're approved, you can start factoring your invoices immediately.
The additional factoring services a factor offers are also advantages of working with one. Most freight factoring companies will offer dispatching and broker connections to find you the best paying loads. Fuel cards are another advantage of working with a factor. Porter offers its clients a free fuel card with advances and discounts, saving them thousands of dollars every year.
During this time of business uncertainty, it is best for companies not to take on any new debts, even an unsecured business loan. It is difficult to repay a loan when your business is already struggling. Freight factoring is not a loan, and nothing needs to be repaid, which is why it is a great business financing solution for trucking companies.
If you're ready to take the next step for your trucking company and get consistent cash flow, give us a call today at (205) 397-0934. Porter gets you paid in 24 hours on every invoice, offers you a free fuel card with advances and discounts, and keeps you loaded up. Click here to learn more.