How Does Factoring Work in the Trucking Industry?
Updated: Mar 13, 2020
In the simplest terms, invoice factoring is how you get paid FAST in the trucking industry. It's a way to get consistent cash flow for unpaid invoices.
Typically, a shipper or broker will take anywhere from 30, 60, or 90 days to pay you for a load you haul, and nobody has time to wait that long to get paid - especially when the bills don't stop. Invoice factoring eliminates that wait time, and if you're with a good factoring company, they will pay you within 24 hours of submitting your invoice.
Invoice freight factoring keeps your cash flowing constantly so that can keep hauling loads.
So, how does factoring work?
Factoring is a type of financing that will improve a company's cash flow instead of waiting to be paid on an invoice. A factoring company will buy the accounts receivable of the client so that they can get immediate cash upon sending their bills in.
This is the process that takes place in short:
You submit your invoices on the load(s) you haul
Your factoring company will advance you the cash (minus the factoring fee)
Your client will pay the factoring company for the load 30 to 90 days later
Depending on who you factor with, whether you sign up for recourse or non-recourse, or if there is an advance rate, this process may vary. Before submitting your invoices, your factoring company will approve you so you can work together and run credit checks on your clients to minimize the risk of working with debtors who fail to pay.
If you have a non-recourse factoring agreement, the factor will handle all collections and will take the fall if a shipper or broker doesn't pay. With a recourse factoring agreement, your fleet is responsible for collections if the broker or shipper doesn't pay within the allotted time. You are also responsible for paying the factor for a shipper or broker that fails to pay. The factor will also hold a portion in reserve until the customer has paid the invoice.
Why you should consider using factoring for your trucking company
Consistent cash flow is key in being successful in the transportation industry. It's always good to have that safety net to know you will ALWAYS get paid within 24 hours when you work with a factor.
When you factor with Porter, we don't only get you paid the same day, but we set you up with our network of dispatchers to find you freight and you get a free fuel card with advances and $0.50+ discounts. We also help you get the best insurance quotes, connect you with compliance partners, and you have access to a FREE TMS where you can manage your entire business.
Get started today and see how how factoring with Porter can help your trucking company grow! Fill out the form below and one of our factoring and freight consultant will be in touch.