In tough economic times, getting paid quickly for every load you deliver is paramount. Trucking companies, especially owner-operators and small- or mid-sized carriers, can rarely afford to wait 45 to 60 days or more to get paid for their freight bills. Cash flow is critical to keeping trucks on the road.
Freight customers frequently provide an advance on a load so the carrier has funds for incidentals like fuel and other trip expenses. But small advances do not keep cash flow in balance since your expenses often outpace the amount of the advance payment.
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Choosing the Right Factoring Partner
Factoring is not new; there are dozens of factoring companies specializing in trucking and other industries that all claim to help with your cash flow. But not all freight bill factoring companies operate in the same manner. Selecting the right factoring company for your needs is critical but it takes research. Find out who you are dealing with before signing any contracts. Here’s more information to help you decide:
- Will your factoring account be managed by an account rep who funnels all your requests to the relevant personnel or can you call anyone at the factoring company and get the assistance you require?
- Most traditional factoring companies expect you to sign an exclusive contract (usually for one year with automatic renewal unless proper cancellation notice is provided).
- Many companies ask you to provide detailed information about yourself and your business, including personal financials, company financials, customer lists and more to be approved. With most traditional factoring companies, many trucking companies are denied due to credit reasons.
- Most factoring companies cannot work with smaller trucking companies or owner-operators, which often have the greatest need for a factoring relationship. Many have minimum requirements for the amount of business their carriers do, typically $15,000 to $20,000 per month. They also require volumes of completed paperwork before you are even put into consideration to become a customer.
- Many trucking companies are turned away by factoring companies, particularly if they have had financial problems in the past or are unable to meet the minimum monthly funding requirements.
- Factoring companies often have hidden fees. For instance, many have per-invoice or per-page fees, low teaser rates with sliding scales depending on the age of the invoice, fees for credit checks, wire fees of $15 or $20 and same day payment fees to name a few.
- Very few factoring companies offer funding on the same day they receive your freight bills, which might not alleviate your immediate cash flow needs. And if they do offer same-day funding, they may charge you for the privilege.
- Most traditional factoring companies require you to factor every freight bill through them and have no spot-factoring options. They will advance you typically just 80 percent to 90 percent of the money you are owed, holding the balance in a reserve account that you cannot access until your customer has paid the factoring company in full. As the factoring company receives payment for your freight bills, a percentage of the money withheld is released back to you. If a factoring company does not get paid for a freight bill, or it takes longer than 45 to 60 days, they will charge back the full amount and take it from your reserve account, whether you like it or not. That is known as recourse with a reserve account and is an accounting nightmare. And for that reason, it remains important for you to make smart business decisions before signing any factoring agreement.
- The negotiated contractual fees or percentage you are charged by factoring companies are commonly based on a variety of things. The factoring company typically establishes your base rate, which may vary from about 3 percent to about 7 percent at most companies. However, that percentage can increase on a sliding scale with each freight bill, depending upon how long it takes your customer to pay the factoring company. With some factoring companies, the actual cost to you may exceed 10 percent or more for any given freight bill, particularly if your customer is slow to pay. In the end, your actual factoring costs can be higher than the agreed-upon base factoring rate. In the worst case instances, you could be charged back the full amount of the freight bill if your customer does not pay, and still have to pay the factoring fees on top of that.
- Understand the terms before signing any contract for factoring. Many traditional factoring companies do not openly discuss how you might end the factoring relationship if it proves less than advantageous for you. In some cases, if you break a contract you may be subject to all the fees for the life of the agreement. And even if you provide proper notice of termination (usually 60 days before the automatic renewal date) you may be placed in an awkward situation. If you continue factoring during that time, it becomes difficult to end the relationship because the factoring company will not legally release you until all open freight bills have been paid.
The benefits of working with FactorLoads:
- Improve your cash flow, get paid within minutes of delivery.
- We were the first to service the needs of owner-operators and small- trucking companies.
- No hidden fees or charges.
- No long-term contracts.
- No minimum requirements for the amount of business you conduct through us.
- We can get you started on factoring the same day you apply to work with us.
- Our unique, non-recourse freight bill factoring program is now imitated – but not quite duplicated -- by other factoring companies. Our recourse option and spot factoring options are second to none.
- FactorLoads offers an online Account Management Center where our carriers can monitor each step of the factoring process at any time. The Center allows for viewing and creating accurate, easy-to-understand custom reports, and 24-hour access to credit information on thousands of the most popular freight customers and more.