If you’re in the trucking business and have freight invoices to factor in, chances are you’ve heard of freight factoring. The factoring companies are an asset to the freight industry. Factoring is a service that allows truckers to have cash flow and focus on business operations instead of worrying about their invoices and waiting for customer payments.
Factoring does not require upfront costs or credit checks like traditional financing methods. You can increase your cash flow by purchasing your freight invoices and collecting outstanding invoices. We will help you understand what factoring is and how it works by providing definitions of the term, how to research companies that may be a good fit for you, and an overview of your legal rights.
1. What is Freight Factoring?
To understand, it’s essential to understand what the term implies. It is a type of business financing where the trucking company or owner sells their invoices to an outside company in exchange for cash.
This means that the trucking company has its invoice sold for dollars or some other currency to use as much of your invoice as possible by paying out less than the actual value of your invoice. In turn, the factoring company then returns the trucking company with that billing amount.
2. How Does Factoring Function?
The factoring companies work with both trucking companies and consumer manufacturers to collect their outstanding invoices and pay out the cash to the trucking companies. They buy your invoices by paying slightly more than each invoice is worth, and all of these transactions are tracked on a central database.
The trucker’s invoices are sent to a factoring company working with banks, brokerages, or other financial firms. The trucking company notifies its factoring company of the amount of money it owes for freight invoices. The trucking company receives cash as soon as possible to pay off the invoices.
3. Freight Factoring Pros and Cons
Factoring is a service that provides many advantages to trucking companies. The factoring companies offer the truckers cash immediately, so the trucker doesn’t have to wait for payment from their customers. The factoring company also ensures that the truckers will make money by getting extra paid on their invoices above and beyond what they are worth when it’s sold.
However, the factoring companies usually only buy invoices once they become overdue or have a balance not being paid. The invoices must also be payable within 90 days or less of being sold. In addition, you’re responsible for any late fees that the invoice may incur on top of the factoring company’s buying price.
Factoring is a great way to manage your business’s finances by increasing your cash flow and reducing the time you wait for your client’s payments. Factoring companies can be a beneficial resource to small trucking companies because they provide the service at no cost, and you’re not required to deal with any credit checks.