Freight Factoring Tips for Owner-Operators & Small Fleets

Trucking fleets of various sizes use freight factoring as a way to speed up cash flow. So how does freight factoring benefit owner operators? The benefits are numerous, from upfront cash to billing services and other back office assistance. With the following tips for factoring, you too can make an informed choice on the best company for your fleet.

Purpose of Freight Factoring

The purpose of freight factoring is to help carriers with cash flow problems get their payments sooner from shippers and brokers. For carrier fleets, the costs of daily operations can add up, and many fleets can’t afford to wait a month or more just to receive payments. By using a factoring company, fleets can get most of the money upfront and commence with operations without a hitch.

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Why Trucking Companies Choose to Use Freight Factoring

It’s often asked why carrier fleets would get a third party involved when they can simply wait 30 days for a full payment from the shipper or broker. The thing is, many expenses can emerge as freights are moved from one location to another. Fleet trucks need fuel, engine tune–ups, oil changes, tire repairs and various other types of maintenance along the way. By getting the money upfront instead of after the fact, a trucking company has its operations covered ahead of time.

Benefits of Freight Factoring

With freight factoring, you don’t have to worry about immediate expenses possibly derailing your ability to deliver goods on time. If a truck needs engine work or a new set of tires, you won’t have to cut into your pre–existing cash supply just to cover the expenses. With freight factoring, all the expenses that could arise on an intrastate or cross–country trip are immediately covered with no financial loss.

Freight factoring also gives you the satisfaction of feeling paid for the work that your fleet performs. When you have to wait 30 to 60 days just to get paid for a delivery, it almost feels as if you’re working for free. Meanwhile, there are expenses to be covered on a daily basis, from gas and maintenance to insurance and salaries. Simply put, freight factoring is essential because it allows you to get paid today for the work that you’ve done today. Some freight factoring companies even offer cash advances 24/7, allowing you to get the money any time you need it.

How it Factors Into Real–life Trucking Situations

A trucker’s schedule is not your typical 9:00 to 5:00 routine. If you’re an owner operator in Utah and you need a cash advance as soon as possible at 11:00 pm Mountain Time. When you consider the actual current time on the East coast, you just won’t have the money for your truck repair until maybe the next day, if you’re lucky. Basically, the conventional model — in which you wait a month or more to get paid by the carrier — just doesn’t work for owner operators in most situations.

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When you partner with a good freight factoring company, you can get a cash advance the moment that you need it. Regardless of whether you need the money at 11:00 am or 11:00 pm for an order from the other side of the country, you get the bulk of the money upfront, and they pay the freight company weeks later.

Industry Lingo in Freight Factoring & What It Means For You

One of the most important details to know about a freight factoring company is whether they operate on a policy of recourse or non–recourse factoring. The difference between the two is the difference between whether or not you get to keep your money in the end if the shipper or contractor doesn’t pay.

With recourse–based freight factoring, the upfront money is only provided by the factoring company if you agree to reimburse them in the event that the shipper or contractor skips out on the payment. As such, recourse based factoring can be somewhat risky, because you could still be out of money for work performed 30 to 60 days earlier if in fact the paying party doesn’t follow through on their end of the deal.

With non–recourse freight factoring, you don’t have to reimburse the factoring company for upfront cash if the carrier or shipper skips out on their end of the bargain. Basically, the factoring company assumes the risk, while the rogue entity gets a stain on their credit report. In the end, non–recourse factoring helps the industry weed outs its bad apples.

How Does Freight Factoring Work?

It’s often assumed that the process of procuring funds early through a third party in the trucking industry will involve tons of complicated paperwork and qualifiers. In actuality, the process of freight factoring can be broken down into six simple steps.

Step 1. For starters, you book the load of your customer and then fax or email their information to the freight factoring company. The information contained in this fax or email should include the load, the rate confirmation, and any other pertinent details about the shipper or carrier.

Step 2. The freight factoring company runs a credit check on the shipper or carrier, and then sends you a notification as to whether the party has been approved. Basically, the factoring company wants to determine whether the party in question is likely to pay, or if credit blemishes indicate too much of a risk factor.

Step 3. With the shipper or carrier now approved, you pull the load, pure and simple.

Step 4. Once you’ve emptied things out, you send another email or fax to the factoring company, this one containing documents related to the load, or the Bills of Lading.

Step 5. Later that day, or no later than 24 hours after faxing or emailing the documents, the freight factoring company will deposit some or most of what the customer owes. The money will deposit to either your bank or EFS account.

Step 6. After 30 to 60 days have passed and the customer pays the freight factoring company, you will be paid the remaining balance of what the customer owed, minus any fees.

How Does Freight Factoring Help Owner Operators and Small Fleets?

Upfront payments and an improved maintenance budget are among the factoring benefits for small fleets. For a small fleet, it’s often hard to maintain the proper cash flow necessary to pay for fuel, maintenance and the various pieces of equipment that are necessary to carry out operations and not miss out on any new load opportunities.

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In addition to giving cash advances at any time, day or night, good freight factoring companies may offer 24/7 roadside service by connecting you to companies in your area that can help in the event of a truck breakdown. Additionally, most factoring companies offer fuel advances, which you’ll get the money for once you’ve picked up the load. At owner–operator factoring companies, you can even get fuel cards, which help with the management of fuel payments.

In the Digital Age, is Factoring a Service That Will go by the Wayside?

Contrary to popular belief, freight trucking companies are more relevant than ever in the Internet age, because even though expectations have changed, payment policies haven’t.

With the processes of ordering now expedited by the Internet and mobile technology, purchases occur faster than ever. But while carriers are expected to make deliveries faster than before, brokers and shippers still often wait an entire month to pay. Therefore, carriers are expected to work harder and more immediately without the cash to cover their overhead.

To make the process even more efficient for the digital age, some freight factoring companies now allow carriers to send paperwork over the Internet. Additionally, factoring companies are providing mobile apps on which carriers can access and input information on the go. The digital adaptation of the freight trucking industry has made it easier than ever to run a trucking company from anywhere across North America.

How to Choose a Factoring Company

With the right factoring tips, it’s easy to tell the factoring trucking companies that offer carriers good terms and services from the companies that don’t. Companies in the first category offer customer support and a range of services with fair terms that don’t impose unfair limitations on you, the carrier, such as withholding payment for loads that are “too small” or dramatically decreasing the amount you keep when getting paid for “smaller” loads.

What Should an Owner Operator Look for in a Freight Factoring Company?

In order to succeed as a carrier, you need to ensure that paperwork is completed and sent to the factoring company as soon as possible. With today’s mobile options, the whole process can be expedited via smartphones. Therefore, you really should only choose a freight factoring company that provides digital options.

A factoring company should also offer round–the–clock access to service representatives who will provide help and answers for any concerns that might arise during the process. Furthermore, today’s factoring companies should offer online account services, where you can login to input or check data on anything you need to know, 24/7. Additionally, the website should offer features that allow you to upload documents, make invoices and get reports on a customer’s credit standing.

Another factor to consider when you choose a freight factoring company is whether they offer a billing management service. When a factoring company has expertise in this area, it can be an invaluable asset that can save you lots of time and headaches. It’s difficult to manage accounting on the road, so a factoring company with this service shows not only their expertise but also their commitment to helping you. Lastly, don’t forget to inquire about a company’s fuel card options, and ask if they can help determine the best choice for your fleet.

What to Look for in a Factoring Contract

An estimable freight factoring company can be distinguished by a number of key factors. First off, a factoring company should know the ins and outs of the industry, and be mindful of the challenges that are often faced by carriers of different sizes. Secondly, a factoring company should have a solid team of customer service representatives that work individually or in groups with each carrier.

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It’s best to go with a freight factoring company that runs credit checks on shippers and brokers as soon as possible, and informs the party in question about the approved amount. This protects both the carrier and the factoring company and ensures you don’t spend time on a load you might not get paid for.

What Questions to Ask a Potential Factoring Company?

Before you sign a contract with a freight company, it’s important to ask some key questions about the terms of the contract. For starters, is there a lien being filed, and if so, what kind?

Another key question concerns the length of the contract. Is the carrier allowed to use the freight factoring service on a customer–by–customer basis, or is a long–term contract required? A lot of factoring companies require carriers to use the service with all customers going forward. However, for owner operators and small fleets, it’s typically in your best interest to have flexibility with which loads you want to factor. Look for a freight factoring company that allows you to factor on a load-by-load basis to keep your best interest and flexibility in mind.

Some freight factoring companies also have monthly minimums that must be met by a carrier. Be sure to ask if any minimums apply, and what penalties fees are imposed on carriers that fail to comply. Many factoring companies will keep this things in the fine print until a situation arises where you incur a penalty fee for not meeting their monthly minimum. This can create a distressing and detrimental situation for owner operators and smaller fleets.

You should also inquire about the invoicing methods of the factoring company. When they collect from a customer, do they employ an aggressive or friendly approach? Ideally, you want a freight factoring company that is more of a partner and advocate than an aggressive payment collector.

Finally, ask the freight factoring company if there’s a termination fee. What is the size of the termination and how much time do they require beforehand for you to cancel your contract? In the best case scenario, a company will not force you into a contract. Some factoring companies will even evaluate your current factoring contract to uncover hidden fees or obligations you might not have been aware of when signing.

Factoring Benefits for Small Fleets and Owner Operators at FactorLoads

Freight factoring is a helpful service for owner operators, as well as small and mid–sized companies in the trucking industry. The ability to get cash upfront when you need it, so that you can cover the expenses of each load, is important to your financial bottom line. When you have to wait for a month or two just to get paid by a customer, it can be a profit loss in the short term that many trucking companies simply cannot afford. The instant cash from factoring allows you to cover vehicle maintenance, fuel, oil, and any tools that might be needed to complete a job and not miss out on the next job.

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Out on the wide, open freeways of North America, thousands of trucks are delivering loads across various distances on a daily basis. Some of these trucks have problems on the way and need immediate maintenance, and all need fuel on a regular basis, as well as the occasional oil change. If an entire fleet suddenly needs maintenance, the trucking company could face huge setbacks. With freight factoring, customers can be credit–approved so that cash can be forwarded to you at any time, in any location, day or night.

At FactorLoads, we help trucking companies and owner operators get cash quickly and conveniently. That way, when you deliver a load, you won’t have to wait 30 days or more to get paid for fulfilling the delivery. Operating 24/7, our services don’t require any hidden fees, sliding rates, or hold backs. Furthermore, we offer a flat rate and we don’t require a contract. Additionally, we do billing and offer back office support for trucking companies that prefer to hand that work to a third party. We even have reports that you can run to help with easily and quickly filing taxes.

FactorLoads was created by an owner operator and specializes in factoring for owner–operators, small fleets and mid–sized trucking companies, and we are committed to advocating for the trucker and serving your needs. Contact us today for a free quote, to review your current factoring contract, or for more information on our factoring services – our experts will be happy to help you!