Trucking Factoring For Your Trucking Company
Updated: Sep 14, 2020
What is trucking factoring?
Trucking factoring provides trucking companies with a convenient and reliable source to get consistent cash flow from their invoices. The trucking business sells their unpaid invoices to the freight factoring company to get paid quickly after dropping off a freight load.
Trucking factoring services are beneficial as the typical pay term from a customer can be anywhere from 30, 60 to 90 days. This can be different for truck drivers that have established relationships with direct shippers. There is no long wait time when you work with a trucking factoring company. It also provides a source of consistent cash flow with no new debt from financial bank loans.
Trucking factoring can also be referred to as accounts receivable financing in the trucking industry. It makes cash available for you quickly so that you are never low on funds to pay your trucking expenses.
How does trucking factoring work?
The main benefit of working with a trucking factoring company is the fast payments of unpaid invoices. The process starts when the freight factoring company buys the accounts receivables of their client, so that they can pay them immediately once they receive the freight bills. Depending on what freight factoring company you work with, pay times may vary. Porter Billing pays its clients all within 24 hours of receiving the invoices.
The process of sending freight bills in is simple:
The trucking company books a load and gets a rate sheet. To confirm pick-up and drop off of the load, a BOL must get signed at both locations.
The trucking company then sends the rate sheet and BOL to their trucking factoring company to get paid. This process may be different depending on the factoring company. When you work with Porter you just send in a photo of the paperwork.
The trucking factoring company will then advance the load amount minus the factoring fee. Porter Billing funds its clients within 24 hours of receiving the freight bill.
The freight broker or shipper then pays factor at the end of their payment term.
This process will be different depending on your freight factoring company. Most trucking factoring companies will credit check your clients to minimize working with debtors who don’t pay. This helps trucking companies choose between which brokers and shippers they should work with and which ones to avoid. Trucking companies also need to decide if they want to sign up for recourse or non-recourse factoring agreements.
What's the difference between non-recourse and recourse freight factoring?
There are two different types of trucking factoring: non-recourse and recourse. Both agreements pay you in 24 hours and are beneficial for trucking companies depending on their company size and freight volume. Both agreements also offer free credit checks on all clients to minimize the risk of working with a bad debtor. All benefits included in a non-recourse or recourse factoring program are included in the factoring fee.
What is non-recourse freight factoring?
Typically with non-recourse factoring the rate will be slightly higher than a recourse agreement. The factor is incurring all the risk if a customer doesn’t pay or goes out of business. The trucking company will never be responsible for paying back the truck factor under a non-recourse agreement. This is a major benefit for smaller trucking companies who would go out of business if they were charged back.
There is no reserve account with a non-recourse program. The trucking company will receive 100% of their freight bill minus the factoring fee when they get funded. The factor will also handle all billing and invoicing, as well as, all collections from brokers and shippers. This is a value added for smaller trucking companies who do not have enough employees to complete all the paperwork.
What is recourse freight factoring?
A recourse factoring agreement is slightly different than a non-recourse one. Firstly, the fee is lower as the trucking company is solely responsible if a broker or shipper does not pay. The trucking factoring company will not take the hit for a missed payment.
There is also a portion of the funding amount held in a reserve account until the broker or shipper pays. The amount that is held in reserve is dependent on the trucking factoring company.
Typically with a recourse factoring agreement, the trucking company is responsible for all invoicing and billing for the company. However, sometimes the trucking factoring company will offer a recourse with billing program and will handle the invoicing and billing themselves. The trucking company is responsible for making collections on the freight brokers and shippers that fail to pay.
Why does your trucking company need trucking factoring?
Without having a unique financial situation or using bank loans, trucking companies benefit from trucking factoring as they get consistent cash flow for their business. You’ll always have enough cash to cover your trucking expenses when you send your freight bills in on time. With Porter Billing, if you send in your invoices in the morning, you’ll get paid that afternoon.
Trucking factoring companies also offer additional benefits like dispatching services and fuel cards. Working with a dispatcher allows trucking companies to stay loaded up with the best freight before it hits the load boards. Porter provides its clients with a database of dispatchers to find the best paying loads for its clients.
Fuel cards allow trucking companies to take control of their fuel expenses. Porter also offers a free fuel card with fuel advances and discounts to its clients. Your money can be loaded directly onto your fuel card, so that you’re never short on cash while on the road.
Trucking factoring is great for trucking businesses as they will incur no new debt and it doesn’t hurt their credit. Businesses with bad credit typically find it hard to get financial loans. However, trucking factoring companies will still work with businesses that have poor credit. No new debt is incurred by the trucking company as factoring is not a loan. There is nothing to be paid back at the end of its term.
Learn more here about how your company can benefit from trucking factoring. Call us today at (205) 397-0934 or fill in the form below and a specialist will be in touch shortly!