Factoring Essentials: Empowering Trucking Companies

If you’re a trucker, did you know that there’s a way to turn your invoices into cash in just 24 hours? This is now possible with the help of trucking factoring. With this service, you no longer have to wait 30, 60, or even 90 days for shippers or brokers to pay.

In this post, we’ll tell you how factoring in trucking works and the basic information you need to know before you factor your first invoice.

What is a factoring company in trucking?

A truck factoring company offers a financial service where truckers can sell their open receivables for a small fee. Once the trucker sells the invoice to the factoring company, the latter takes charge of the collection process.

Take note that factoring for a trucking company is not a loan. It doesn’t incur interest, and there is no exhausting paperwork involved. All you have to do as a trucker is submit a qualifying invoice and wait for a few hours to receive the funds.

In exchange for getting your much-needed working capital instantly, a truck factoring company will charge a small fee. Nevertheless, this is just a small trade-off compared to the convenience and predictable cash flow your business will enjoy.

Once the factoring company collects the invoice from your client, they will send you the remaining balance with their fees already deducted. Usually, the best factoring companies for truckers can advance up to 97% of the factored invoice. They will settle the remaining balance after collecting the receivable and deducting their fees.

How do factoring companies work for truckers?

A factoring company can be a great partner for truckers and owner-operators struggling with delayed payments. Here are some of the benefits of working with a factoring service:

• Get your funds quickly. The best truck factoring company can advance your invoice amount in as fast as 24 hours or less. This means you’ll receive the money tied to the invoice faster than waiting for clients to pay the invoice.

• Avoid bad debts. Many truckers opt for loans to cover their business expenses while waiting for their customers to pay. Instead of paying hefty interest rates, you can factor the invoices while preserving your credit lines.

• Reduces admin work. Factoring services can also simplify your accounting workload by reducing the need for follow-up calls on clients and chasing collections. With that, you can dedicate your time to delivering more hauls.

• Seize growth opportunities. With factoring, you can access your funds right away, allowing you to grow your business just as fast. The predictable cash flow lets you plan the acquisition of new trucks, hire more drivers, and other areas of expansion.

• Enjoy free checks on customers. Before advancing your invoice’s value, factors will first check your client’s credit standing. This is to ensure that the factor can collect the invoice and prevent recourse on the advanced amount.

What to check on your factoring contract

If you’re planning to get started on factoring services, make sure that you check the following on the fine print:

• Pricing structure. While factoring companies can boost your cash flow, it can also hurt if you don’t check their rates. Always do some calculations and follow up with the company if you have questions about their pricing. From there, you can compare multiple providers to see which one offers the best bang for the buck.

• Termination policy. If the factoring company imposes a long-term contract, you may want to look elsewhere. This will limit the flexibility of your business, especially if you just want to test the waters first. Also, check if they charge termination fees and how much it would be. 

• Funding options. If you expect your invoices to grow at a fast pace, you’d want to look for a factoring company with an equally big funding capacity. This way, you’ll have seamless funding whenever you need it.

• Recourse terms. You should also know the difference between recourse and non-recourse factoring. Check the terms to ensure that your business is protected against unjust payback clauses. 

• Auto-renewal clause. Always be on the lookout for a sneaky auto-renewal clause before signing the factoring contract. This clause will allow the factoring company to extend the agreement without your approval. Also, ask if they impose monthly minimums and how much advance rate they can provide, 

• Know some legal terms. Before you enter into a factoring contract, you should have a working knowledge of some legalese or legal jargon. This way, you’ll have a full understanding of the terms, and you can spot potential issues masked in complicated words.

Conclusion

Freight factoring is a proven financial solution for the trucking industry, especially those struggling with lengthy payment cycles. Instead of waiting for weeks, truckers and owner-operators can sell their invoices and receive the funds within days.

Still, you should choose the right freight factoring companies to partner with for your business’s security. Above all, you should read the contract to ensure that it meets your needs while minimizing possible legal issues.

Lastly, don’t hesitate to shop around for multiple providers to see who gives the best perk for your trucking business.

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