The What's and Why's of Freight Factoring
Updated: Mar 16, 2020
It's no surprise that consistent cash flow is critical for you to maintain your truck(s) and business as a company owner. When you're on the road you want to have the comfort of knowing that your company is taken care of and you won't miss a payment. This comfort can be felt with freight factoring services.
What's Freight Factoring?
Freight factoring is a way to have consistent cash flow for unpaid invoices. Factoring companies pay their clients usually within 24-hours once their bills have been sent in. This fast method of receiving cash is especially beneficial for truck company owners so they're able to pay all they're expenses, such as, insurance, truck payments, employees and any other overhead costs. Depending on your own personal situation - how large your fleet is or how long you have been in business for - freight factoring offers two different types of factoring services: Recourse and Non-Recourse factoring.
In this contractual agreement, your trucking company is responsible for a situation when the broker doesn't pay you on time, or at all. Because you are sharing this risk, the fees are usually slightly lower than a non-recourse agreement. The factoring company will provide credit checks on your clients to help minimize the risk of working with debtors who fail to pay and will hold a portion of your funding in reserve until your clients make the payment. These services work best for establish companies who have worked with their clients and know how long it takes them to pay.
A non-recourse contractual agreement will protect you from clients that don't pay on time or at all. The factoring company incurs all the risk if this happens, and you will not be penalized for it. Companies that cannot afford to take the risk if their clients don't pay or goes out of business will sign up for non-recourse factoring services. The fee is slightly higher since the factoring company assumes all the risk, but it's worth the price to avoid losing your business over.
Why Freight Factoring?
There are multiple benefits of factoring which is why companies take advantage of the services. The major benefits include the following but are not only limited to these:
Consistent cash flow - Carriers need to be paid and they need to be paid on time. Unfortunately, getting paid straight from brokers can take anywhere between 30 to 90 days, which is too long to wait when you need to make monthly payments to keep your company up and running. There is no reason why you shouldn't be paid as soon as you send your bill in. Porter pays you the SAME DAY, so you are never waiting for your payment.
Avoid debt - Invoice factoring isn't a loan, so there is nothing that you need to pay back. It helps you to avoid taking on new debt to keep your company afloat. There are no hidden fees or interest rates included, only the small fees that are taken from your loads.
Funding with bad or no credit - Since your clients are paying the factoring company, their credit is typically more important than yours. So, if you're a company that has little or bad credit, factoring is the answer for you.
Avoid collections - When you sign up for a non-recourse factoring agreement, you don't need to bother with collections. The factoring company takes over this duty if your client doesn't pay, and relieves you of that additional stress. The factoring company will handle all general billing paperwork, giving you time to focus on other tasks and responsibilities that come with running a company.
Flexibility - The best factoring companies will provide flexible contract options. With Porter, you don't necessarily need to sign up for a long-term contract and you'll be able to send in bills as you please. There also won't be any minimum requirements so you can use and not use the factoring services as you see fit, without being charged if you don't use them.
Additional benefits - Freight factoring services not only factor your bills but also provide you with additional services. For example, at Porter Billing Services we also offer dispatching services, fuel cards with discounts on gas and tires, fuel advances on your loads, free credit checks, low rates on insurance, free collection services and invoice preparation.