Freight Factoring Questions Answered
Updated: Nov 24, 2020
What is freight factoring?
Freight factoring, also known as accounts receivable financing, provides your trucking company with invoicing solutions that best fit your fleet's needs, consistent cash flow, and access to your working capital. A trucking company sells their unpaid invoices to a factoring company to get paid quickly on a load, typically within 24 hours.
It usually takes a freight broker or shipper 30 to 90 days to pay on a load. Trucking factoring eliminates this wait time by advancing your factored invoices immediately, minus a factoring fee. Freight factoring helps trucking companies grow their businesses as they are able to stay on top of their expenses.
What's the difference between non-recourse and recourse freight factoring?
A non-recourse factoring agreement is great for smaller trucking companies that cannot afford to take the hit if a broker or shipper pays later or doesn't pay at all. The freight factor incurs all the risk in this situation. The factoring fee is slightly higher, however, the benefits make it worth it. Non-recourse factoring programs also include back office assistance in billing, invoice handling, and collections.
In a recourse factoring agreement, your trucking business is responsible for paying your freight factoring company if the broker or shipper doesn't pay. The factoring fee is slightly lower with this agreement as you are sharing the risk. With this program, there is usually a portion of the invoice held in a reserve account until the factor receives payment. You can usually add in back office assistance to a recourse factoring program if you want, but it doesn't typically come with it.
To help avoid working with bad debtors, factoring companies check freight brokers credit scores so you can avoid running for them. Both non-recourse and recourse factoring agreements can be monthly or long term contracts.
Will my trucking company benefit from freight factoring?
Both small owner-operators and large fleet managers can use freight factoring as soon as their first load has been delivered. The access to quick cash that freight factoring provides helps trucking companies fund their daily operations to grow their business. Another benefit from freight factoring is customer service. Sending in your freight bills and rate sheets frees up paperwork processing and time on your end. Like we stated above, when you have a non-recourse factoring agreement, the factor will handle all back office paperwork, including billing, invoice handling, and collections on your behalf.
Freight factoring companies also offer additional services in their programs. For example, Porter Billing offers a dispatching network to help clients secure the best paying freight loads. Our dispatch network provides loads before they hit the load boards from over 250+ freight brokers that we have already approved to work with. We also have a fuel card program that has fuel advances and discounts for our clients.
Can my trucking company work with a freight factor even with poor credit?
Your company may be eligible to work with a freight factor, even with poor credit. Since factoring is not like a bank loan, there is nothing for you to pay back. So, freight factors look at the credit history of your customers, since they are who the factor is getting money from. A factoring company may decline working with certain freight brokers or shippers if they have bad credit, as they don't want to risk not getting paid. But, your approval may not be based on your credit score.
Porter Billing Services can help your trucking company grow!
Porter Billing can help your trucking company get instant access to working capital. Get paid in 24 hours on every invoice, have access to top paying loads, the best insurance rates in the industry, and a fuel card program that will save you thousands of dollars yearly. For more information or any questions you have, give us a call at (205) 397-0937 or learn more here.