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Freight factoring services are most often used by freight, rail and trucking companies in the transportation industry.
Due to the incompatible payment terms that exist between the shipper and the carrier, cash flow problems are common in the industry — even for freight companies that routinely turn a profit. The shipper generally demands immediate payment, but the carrier usually doesn’t collect until delivery.
While many business opportunities exist, profit margins can be slim for small and mid-sized trucking and transportation companies due to heavy competition and the lowest bidder often securing the job.
That’s why many carriers rely on freight bill factoring to shore up their cash flow. The service allows them to get paid in 24 to 48 hours and requires dramatically less paperwork than a business loan (link to the advantages of factoring section of the accounts receivable page).
Factoring requires dramatically less paperwork than a business loan and allows a trucking business to get cash in as little as 24 to 48 hours.
Freight bill funding, or freight bill factoring is a working capital solution that allows a trucking business to monetize outstanding invoices and get paid almost immediately for work already completed. This is achieved by selling invoices to a factoring company. After buying the invoices the factor typically advances a large portion and takes out a small discount as payment. Trucking and transportation are amongst the industries that have the highest advance rate.
Factoring can help a freight business:
- Ensure sufficient funds are available to cover fuel, vehicle maintenance and repair, containers, drivers’ payroll, licensing fees and insurance expenses
- Improve cash flow and operate in a more efficient manner
- Ensure money is available to bid on future jobs
- Expand company’s vehicle fleet to take on new routes or haul additional loads
- Invest in marketing or promotional activities to attract new business
To see why factoring is a good alternative for your business, please check out the “Why does your business need factoring?” section on our Invoice Factoring page.
Factors typically charge 1% to 5% discount rate for their services. For additional information on the factoring fee structure, please see our Asset-based Lending page.
Some of the largest consumer factoring companies in the world include credit card companies, such as Visa and Mastercard. At the same time, commercial clients are served by specialized freight factoring companies and banks.
Factoring relies on the creditworthiness of your clients making it an ideal option for freight companies that are just starting out. To extend freight factoring services, factoring companies run a credit check on your clients. This apprises you of your clients’ risk profile allowing you to make informed decisions about maintaining a business relationship with them.
Most trucking and transportation businesses qualify for invoice factoring. Companies that can benefit from freight factoring services include the following:
- Large transportation fleets
- Intermodal and container companies
- Freight brokers
- Dump truck haulers
- Long-haul truck load, local delivery or international
- Automobile transporters
- Haulers for credit-worthy shippers
- Transport companies that haven’t pledged accounts receivable as collateral
- Hot shot drivers
The most important qualifier for getting approved for factoring services is a customer base with reliable credit history (with a record of paying bills on time). The second most important qualifier is that your invoices are free and clear, meaning you don’t have any liens or loans that use accounts receivable (A/R) as collateral.
An invoice can be factored in three simple steps:
- Upon receiving your application and supporting documents (Link to What is required to take out an asset-based loan or factor receivables? On the asset-based lending page), Business Factors runs a credit check and does due diligence on your customers to determine appropriate credit limits
- Your invoices are then verified and funded within 24 hours
- Once the invoices are paid, you get the money minus the discount rate and any additional fees
Business Factors has been providing freight factoring services since 1969. We offer non-recourse factoring and use proprietary software to prevent or track billing delinquencies once your account is live.
Below are a few reasons why businesses choose us:
- Advances of up to 96% of the invoice face amount
- Fast, easy freight bill factoring set-up
- Low fees and complimentary credit checks on your clients
- Available 24/7, 365 days a year
- No upfront fees and simple credit qualifications
To learn more about our recently launched write-off protection service with rates starting at 2.19%, please visit our blog.
Any trucking business that has creditworthy clients and invoices unencumbered by liens or bank loans is eligible for factoring. With factoring, you can get up to 96% of the invoice face amount.
Here is an example of a factoring arrangement:
- Invoice amount: $2,000
- Advance rate: 96%, or $1,920
- Reserve: 4%, or $80
- Discount rate: 2.19%, or $43.8 every 30 days, capped at the amount of the reserve
- Type of arrangement: non-recourse
In this example, the factor provided $1,920 upfront and charges $43.8 as its monthly fee. The fee is capped at the amount of the reserve ($80), so that if the invoice is collected after three months, the client only pays $80. If the invoice is collected after one month, the factor returns the remainder of the reserve, which is $36.2 ($80-$43.8). If the invoice is not collected, there is no chargeback to the client because the arrangement is non-recourse.
In addition to credit insurance at a fraction of the cost, Business Factors provides accounts receivable management. We handle collecting invoice payments so you don’t have to. Your time is better spent focusing on business operations and growth.
We also offer reusable fuel cards where a portion of proceeds from a factoring invoice can be deposited directly. That way drivers don’t have to carry cash and can refuel quickly and conveniently at the pump.
Finally, we offer online account management which allows you to check the balance of your accounts and see when a client pays the invoice.
Factoring can help experienced transportation companies as well as new hotshot trucking businesses. Get started today by filling out a four-minute application.
Freight companies often experience cash flow problems due to the incompatible payment terms that exist between the shipper and the carrier. Factoring – which is the sale of invoices to a specialized finance company – presents an optimal solution to this issue. A factor typically charges a discount rate between 1% and 5%. Any trucking business that has creditworthy clients and invoices unencumbered by liens or bank loans is eligible for factoring. Business Factors has been in business for close to 50 years and monetizes invoices through a simple, three-step process in as little as 24 to 48 hours. We advance up to 96% of the face value and save you money with low fees and complimentary credit checks on your clients. We also provide accounts receivable management, reusable fuel cards and online account access.
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