Truck Factoring: A Comprehensive Guide for Truckers

What Is Truck Factoring?

Truck factoring is an easy way to receive money in exchange for the invoices you receive after delivering the load. Truck factoring companies have helped many trucking companies keep their business running by assisting them to maintain their cash flow. The average delay payment of an invoice after delivering the load is 40 days, which is a lot and will affect the business.

If the invoice is timely, the bills due, fuel required for the next delivery, food, and lodging are easier to maintain. But how do factoring companies help with your bills? 

Factoring is a solution for the trucking business to exchange invoices with cash from the factoring companies. Factoring, also known as freight factoring, can help trucking maintain their cashflow to keep the company running. On the contrary, the factoring companies deal with invoice payment processing and collection. In exchange for the service, the driver will pay the factoring company a certain percentage of their invoice.

How Does Truck Factoring Work?

Factoring is exchanging your invoice to the factoring companies to receive quick cash. Factoring helps you maintain your cash flow and keep your business running smoothly. After you submit the invoice to the factoring company, the company will verify all the details. They will pay within 24 hours but deduct the service charge. The service charge is an average of 1% to 6%, depending on the company you choose and the type of factoring you want to do.

Factoring is divided into two types. They are recourse and non recourse. Recourse factoring charges higher service rate because you’ll not be responsible if the customer doesn’t pay the money to the factoring company. On the other hand, non-recourse has less service charges as you’ll be accountable for paying back the factoring company if the customer doesn’t pay.

Benefits of Truck Factoring

The average cost of running a truck in the United States is $2.251 per mile; if your invoice is delayed by 40 days or even more, it’ll affect your trucking business badly. Factoring companies save time, keep cash flowing, and save the extra efforts you must make while collecting the money.

Here are 6 major benefits of Trucking Factoring:

Improves cash flow and provides money-saving opportunities

The factoring companies give cash within 24 hours of invoice submission, which helps the trucking company keep the business running smoothly. Having cash flow in a company will help you pay for your expenses, such as food, housing, truck maintenance, fuel, and many more. The factoring companies have helped a lot of truckers maintain steady cash flow.

Reduces the accounting burden

Factoring saves you time. You can focus less on invoicing, checking on payment, chasing collection or making follow-up calls. The factoring company will handle all this, including resolving any disputes.

Can Reduce Your Stress Level

Using factoring can make running a trucking business easier and less stressful. With a factoring program, you’ll know exactly when and how you’ll get paid. This helps ensure a steady flow of money, allowing you to pay your bills, drivers, and expenses without worrying about when you’ll have the money in your bank account.

Can Help Business Growth

Factoring ensures you reliable cash flow and working capital. This helps you predict your income, expenses, and profit more precisely. When you know the money your business receives every month, you’ll be able to focus more on the growth of your business. Reliable cash flow also simplifies your work because you won’t have to worry about unpaid invoices.

Qualified brokers

Qualified brokers benefit trucking companies by providing expertise, saving time, and offering access to multiple factoring options. They negotiate better rates, tailor solutions to individual needs, improve cash flow and provide ongoing support. Additionally, brokers help mitigate risks associated with customer creditworthiness, making them invaluable in facilitating efficient and effective factoring arrangements for trucking businesses.

Safeguard your business from potential risk of bad debt

Factoring saves your business from the potential risk of bad debt, which occurs when someone who owes money is unlikely to repay it. Non-recourse factoring is a way to protect yourself if the company or person you’re working with goes out of business or can’t pay you. Because non-recourse factoring takes on the bad debt risk, it will be more expensive than recourse factoring.

Challenges of Truck Factoring

When evaluating freight factoring services, it’s essential to carefully consider how they align with your business’s specific needs and circumstances. While factoring can provide immediate cash flow solutions, it also brings certain challenges that need attention.

Costs and Fees

Factoring is definitely not free. As with any service, it also charges fees for its service. These fees can be a percentage of the invoice amount, a flat fee, or a combination of both. Over time, these fees can add up and eat into profit margins.

Loss of Control

Loss of control is a major drawback of factoring; billing and collection done by the factoring companies may differ from how your company or you used to do it. The factoring company may make decisions regarding credit limits for customers and may refuse to factor invoices for certain customers. This can limit a trucking company’s ability to choose customers and control its customer base.

Potential Impact on Customer Relationships

Customer relationships can be a challenge when a trucking company uses factoring services. Factoring involves a third-party interaction with a trucking company’s customer to collect payment. This change in dynamics can affect how customers perceive the trucking company, resulting in payment confusion, privacy concerns, and many more.

How to Apply for Truck Factoring

Applying for factoring is quite simple. First, you’ll need to own a trucking business, whether you’re an owner-operator or have a large company. The key is that your customers should have a good track record of paying their bills. After this, you’ll need to know the application procedure of the company you want to work with. Every factorying company has a different application procedure. Many companies offer online applications that are available on their online website.

Documentation Required

Gather the necessary documents and information that the factoring company requires. These include:

• Factoring Application
• Valid commercial driver’s licenses (CDLs)
• Proof of your business entity (e.g., articles of incorporation)
• Insurance information
• Copies of your invoices
• List of your customers and their creditworthiness
• Bank statements
• Tax returns

Application Process

The application process is different from company to company. The application process requires contacting a factoring company and providing information according to their procedure. The company may ask for documents and make you fill out a form.

Approval and Onboarding

Approval and onboarding process in trucking factoring involves many steps. This step includes:

• Application of a trucking company
• Review and approval of their application
• Negotiation of the service charge and
• Signing the agreement

The approval and onboarding process aims to establish a mutually beneficial partnership between your trucking business and the factoring company. It enables quick cash flow while the factoring company handles invoice processing and collections. Effective communication and sticking to the terms of the agreement are key to a successful factoring relationship.

Things to consider when choosing a Truck Factoring Company

Factoring is a fast and easy way to get your unpaid freight bills. Instead of waiting for weeks or even months, factoring companies provide the outstanding money within a very short period of 24 hours. This will help to keep the cash flowing in your business. However, you must consider these things when choosing the trucking factoring company:

Industry Expertise

Industry expertise is really important when picking a factoring company. They understand your business better and can make a financing plan that fits you perfectly. Experts give you helpful advice, making it easier for your business to grow and do well in your field.

Competitive Rates

Competitive rates hold significant importance as they result in:

• Cost savings
• Higher profit margins
• Financial stability
• Improved cash flow
• Simplified repayment
• Increased availability of capital

These combined benefits are crucial in nurturing your business’s overall health and success. It’s essential for trucking companies to carefully compare and assess the rates offered by different factoring providers. It ensures they get a cost-effective solution aligning with their financial goals.

Also Keep Reading More: Ways Truck Drivers Can Strengthen Family Relationships

Flexibility in the Contract

When selecting a factoring company, choosing one that offers flexibility in the contract allows you to avoid non-flexible commitments such as a minimum number of monthly invoices or heavy penalties for early payments. Avoid long-term contracts, even if they promise lower initial fees, as they may become more expensive.

A reputable factoring company should offer the option to pay without a minimum cost. Additionally, choose a provider that lets you select which invoices to include, avoiding those that demand you include all or limit you to a specific client’s invoices. This flexibility empowers you to have better control over your financial arrangements.

Personal Touch

In business, you work with people, not just a company. A good truck factoring company will give you a personal account manager. This person should be there to answer any questions and ensure everything goes smoothly.

Fuel Advances

Do you need money upfront for fuel? If yes, pick a trucking factoring company that provides cash advances for fuel. Some of these companies offer up to half of the money you need for fuel when you pick up a load. These fuel advances ensure you have enough money to fill your tank and take on more profitable jobs.

Additional Services

Good truck factoring companies should offer extra services for you. These additional services can include:

• A fuel card program
• Checking your credit for free
• Access to a load board without additional fees
• Being able to review your account online at any time
• Help with collecting payments from customers
• Assistance with getting insurance for new trucking companies

These services can make running your trucking business and handling your money easier.

Truck Factoring FAQs

Is factoring worth it?

Truck factoring can be worth it. Healthy cash flow is very important for a trucking company to run smoothly. You must get paid promptly to expect your business to run smoothly. This is one of the reasons people choose factoring companies.

What is a good factoring rate in trucking?

The average rate for factoring is between 0.5% to 5% of the invoice cost. It depends on the company’s standard rate, as well as the size of the invoice, as a larger invoice will generally incur a lower percentage fee.

What is the Difference between Recourse and Non-Recourse Factoring?

The company is responsible for collecting payment in recourse factoring. You are not responsible if they cannot get the payment. However the factoring rate is usually much higher.

In non-recourse factoring, you are responsible for the payment of the invoice. In the case of non-payment of the invoice, you need to refund the money to the factoring company that you exchanged for the invoice. The rate of factoring is on the lower side compared to recourse factoring.

How do I Qualify for Truck Factoring?

Qualifying for factoring is a straightforward process. You need to own a trucking business, even if you’re a solo driver, and serve customers with good credit. That’s all there is to qualify.

Which is the best factoring company for trucking?

The best factoring company for trucking depends on your specific requirements for maximum profit. “TruckSmarter” is the best company for upfront factoring pricing, while “APex Capital” is for funding speed. Likewise, “Triumph Business Capital” is for invoice management, and “eCAPITAL” is for small businesses.

Do I need a factoring company for trucking?

Whether or not you need a factoring company depends on your financial needs and preferences. Factoring companies provide benefits such as improved cash flow by advancing funds based on unpaid invoices. Additionally, they handle administrative tasks like invoicing and collection of payments.