What is Freight Factoring and Why Should Your Trucking Company Use It?
Updated: Nov 24, 2020
Many people have heard the term freight factoring but aren't sure what a factoring company is or what it means for your trucking company. We are here to clear a few things up. So, what is freight factoring and why should your trucking company use it?
What is freight factoring?
Freight factoring, also know as invoice factoring or trucking factoring, is the process of receiving money quickly from your unpaid invoices to improve your cash flow. A freight factoring company will buy your accounts receivables and advance you the money within 24 hours, taking a small percentage of the invoice as a factoring fee. Without using freight factoring, or another form of quick pays, it typically will take a broker or shipper 30 to 90 days to pay for a load.
How does freight factoring work?
Freight factoring is a simple process. Depending on the factor pay times may vary, but typically the factor pays its clients the same day they send their freight invoices in. The steps are as follows:
Your trucking company books a load, gets a rate sheet, and a BOL is signed at both locations to confirm the load has been picked up and dropped off.
The BOL and rate sheet is then sent to the factoring company so you can get paid for the load you hauled.
The factoring company then advances the invoice amount, minus the factoring fee within the agreed upon pay terms (24 hours for Porter).
The freight broker or shipper then pays the factoring company at the end of their pay terms (usually 30 to 90 days later).
Non-recourse or recourse factoring agreements
There are two types of freight factoring programs: non-recourse and recourse. A non-recourse factoring agreement is when your freight factor accepts all the risk when your customer doesn't pay on time or at all. This means that your trucking business is not responsible for that missed payment and you do not take the hit. A non-recourse agreement protects your fleet from freight brokers and shippers who are bad debtors that refuse to pay or go out of business.
A recourse factoring agreement does not protect your business if a customer doesn't pay. If your customer does not pay, the factor will collect the payment from you, and you take the hit. The fee is slightly less with a recourse agreement as the factoring company is not taking the risk of a customer not paying. A factor will hold a portion of your freight bill in a reserve account until your customer pays the full amount of the invoice, and advances you the rest within 24 hours.
Why does your trucking company need freight factoring?
Unlike a business loan, freight factoring doesn't require you to pay anything back or hurt your credit. It provides trucking business owners with consistent cash flow, so that you never run low on funds and can pay all expenses. It helps owner operators grow their fleets effectively and efficiently, while keeping immediate access to working capital.
The best freight factoring companies also offer additional benefits like free fuel cards or assistance with finding freight loads. When your trucking company works with Porter, you get access to a network of dispatchers to help find you the top paying loads. We can also help you find the best insurance rates and make sure you are compliant. Whether you have a small business or a large one, your company will benefit from freight factoring.
For more information on how you can get consistent funding on every load you haul, learn more here or give us a call today at (205) 397-0934.