What Is Freight Factoring? Common Factoring Questions Answered

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When it comes to fleet operation, timeliness is everything. Unfortunately, expenses arise that are often hard to cover due to the delayed timetable on which clients pay their bills. To account for this delay, freight factoring companies give fleets the option to get the bulk of the cash up front. For smaller fleets and owner-operators, this makes fleet operation more efficient and solvent.

With a factoring service, you get the bulk of the cash that a client owes for a bill, usually on the same day you submit the invoice. This way, you don’t have to wait the typical 30 to 60 days it takes for a client to pay. All you have to do is submit the invoice for a load to a factoring company, and once the client is credit-approved, you get the majority of money owed. When the time comes for the client to pay, that money goes to the factoring company, and you get the remainder of your balance, minus a small fee.

Factoring Tips for Trucking Companies

Freight factoring can be divided into two categories — recourse factoring and non-recourse factoring. With recourse factoring, you get the cash upon the client’s credit approval, but the burden is on you if the client fails to pay after 60 to 90 days. With non-recourse factoring, there’s no such risk involved. Whether or not the client pays, you get your money.

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Factoring is favored by fleets of all sizes because it takes a lot of the paperwork out of fleet operation. When you employ a factoring service, you don’t have to worry about client payments and invoices, because it’s all handled for you. This allows fleet operators to concentrate on what they do best: operating fleets. Still, a lot of fleet operators remain confused about the benefits of factoring, which makes it important to know the answers to the following questions, in addition to some tips for factoring before you get started.

How Does Freight Factoring Benefit Owner-Operators?

In certain quarters, it’s often assumed that freight factoring is primarily for large trucking companies. However, for people who own their own fleets, the benefits of factoring are exponential. If you operate a trucking business under your own authority, freight factoring can spare you the trouble of delayed payments.

As anyone who operates a fleet would know, numerous expenses are liable to arise in the midst of carrying a load to its destination. In addition to gas and oil, a truck could need any given number of tune-ups or repairs in the course of a few days. For owner-operators, these expenses can be crippling if you can’t access your funds promptly.

With freight factoring, you don’t have to wait the minimum 30 days for a client to pay for a load. Once the client passes a credit check with a factoring company, the funds become available to you. This way, you can proceed to ship the load without missing a beat. Any expenses that arise along the way become available in your account, usually within hours of processing a bill.

What Are the Factoring Benefits for Small Fleets?

For smaller trucking operations, freight factoring makes it a whole lot easier to cover the overhead of each load. As they say in the trucking business, time is money, and you need to have the cash for each load available in your account in order to get from A to B to C. Trouble is, clients don’t pay right away, and you usually only get the funds several weeks after you’ve made the delivery.

With freight factoring, a small fleet can have the money it needs to operate on a day-to-day basis. This way, a small fleet can operate at maximum efficiency with no fear of being short on the funds necessary to complete a delivery. Whether a truck needs new tires, filters or other maintenance along the way, the costs won’t be as crippling with freight factoring.

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Freight factoring makes it possible for small fleets to stay afloat through lean times and gradually grow as companies. This way, the playing field is more level and less monopolized by big trucking companies. After all, the big trucking companies have always used freight factoring for the simple reason that it’s a smart way to get cash sooner. As such, factoring could be seen as a smart way for smaller companies to stay competitive and ultimately thrive.

Are There Unethical Practices in the Freight Factoring Industry?

The freight factoring industry is large, with numerous companies that have different practices from one another. The best freight factoring companies are the ones that are clear about their policies and transparent when it comes to fees and terms. For new fleets and owner-operators, it’s especially important to find these companies at the outset.

Unfortunately, there are also some shady players in the industry. Much of the controversy that surrounds factoring has stemmed from companies that deceive owner-operators with bait-and-switch sales tactics. For instance, a company might initially only charge a 1.5-percent fee once a client has paid the balance but then raise that fee on subsequent loads. In cases like these, the benefits of cash up front are all but defeated.

For the smaller fleets that need the cash from each successive load in order to operate, it’s important to steer clear of these deceptive factoring companies. After all, you wouldn’t want to find yourself in a binding contract with a company that tacks on numerous fees. If you find the best freight factoring company for small fleets, you can get the cash you need to deliver each load without the costly fees.

What to Look for in a Freight Factoring Contract

Throughout the freight factoring industry, different companies offer different contracts. Some factoring companies require that you sign a contract, while others will factor on a load-by-load basis. Different factoring companies also vary in the types of fees they charge. As such, you could end up with a small fee or a more sizable amount taken out of your payment by the time the client fulfills the balance.

When you find a freight factoring company and inquire about their services, ask them about their terms. Ask them whether a contract must be signed and whether it’s a short- or long-term contract. Ask them if the contract is exclusive and binding, or whether they allow you to have certain loads factored and others handled internally.

It’s also important to know the full extent of a factoring company’s fees, from the moment you submit an invoice to the day when the client pays the balance. Is there only a minor, pennies-on-the-dollar fee for the factoring service, or are there little fees tacked on left and right? If you don’t ask these questions, you could be taken by surprise, as sometimes a company will bury this information with vague vocabulary in the fine print.

Common Misconceptions About Factoring

Freight factoring is a controversial topic, in large part due to the misperceptions that have swirled around the industry. Among many newer, smaller fleets, confusion persists about the pros and cons of factoring. Some owner-operators don’t even explore the option because they’ve heard that factoring companies only serve the larger fleets.

Fortunately, the negative rumors about the factoring industry are largely untrue. Sadly, many smaller fleets and owner-operators never hear the truth and continue to miss out on the benefits of factoring. Granted, it only takes a few bad apples to poison the well, and there have been some unethical companies that have tarnished the image of the factoring industry overall.

When you search for a freight factoring company, it’s important to know the ins and outs of how such a service could benefit your fleet. Whether you opt for non-recourse or recourse factoring, you could get the cash you need to cover the expenses that come with fleet operations. Of course, to find the best factoring service, you need to first know how the industry operates and who it serves.

Do Freight Factoring Companies Work With Small Fleets?

It’s often assumed that freight factoring companies only work with large fleets, but this is far from the truth. Fact is, fleets of all sizes have used freight factoring services. Whether your fleet consists of fewer than 10 trucks or more than 200 trucks, you could have all of your bills factored by one of the good freight factoring companies in the U.S.

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Is Freight Factoring Only for Fleets With Good Credit?

One of the most widespread misconceptions about freight factoring is that it’s only open to fleets with good credit. The belief is that if you’ve had clients skip out on you before, you will bear the brunt of the blemish. The truth is, there are freight factoring companies with a more sympathetic view towards fleets. When you choose the right kind of freight factoring service, the creditworthiness of clients is taken into consideration, along with a more fair and balanced look at your assets.

Do Freight Factoring Services Require Monthly Invoice Minimums?

Another misconception about freight factoring companies is that they require a minimum number of invoices a month for their services. For fleets that handle fewer-than-average loads on a typical month, this can seem intimidating. The truth of the matter is that some of the best freight factoring companies in the U.S. do not place minimums on monthly invoices amounts. This allows you to use their services based on your needs and load numbers.

Do Freight Factoring Companies Require All Bills to be Factored?

It’s often assumed that once you sign up with a freight factoring company, you’ll be required to factor all of your bills. Understandably, this is perceived as a very binding and restrictive state of affairs in the minds of many fleet owners. Fortunately, there are freight factoring companies that don’t require you to factor every bill. Some of the best freight factoring companies in North America will let you choose which bills you wish to have factored and allow you to handle the rest as you see fit.

Are Freight Factoring Companies Slow to Release Funds?

One of the biggest fears among fleets is that factoring companies are slow to make funds available. This would seem to defeat the purpose, because the point in factoring is to have funds immediately, not a month or two later. Even if a factoring service was to get the funds to you in seven days, you’d have to foot the costs of the load in the meantime. Fortunately, the best factoring companies make your funds available the moment an invoice has been factored, which is usually within 24 hours.

Do Freight Factoring Companies Charge Hidden Fees?

Fleet owners are sometimes apprehensive about the supposed hidden costs of factoring. Contrary to rumors, however, freight factoring companies are generally transparent about their fees. If you ever have doubts about a particular factoring company, ask for an explanation in layman’s terms of all the costs involved. The good freight factoring companies will tell you up front about the costs of factoring.

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Do Freight Factoring Companies Require Long-Term Contracts?

Another inhibiting factor when it comes to factoring is contracts, the idea of which can seem confining — especially to smaller fleets. Truth is, some fleets prefer to have all of their bills factored, while others only need factoring for select loads. Fortunately, there are good freight factoring companies that don’t require contracts and instead let you choose when to factor, whether you want to factor every bill or one out of every five.

Get the Best Freight Factoring Service From FactorLoads

Factoring can be of great benefit for trucking companies of all sizes, especially for small fleets and owner-operators. When you let a factoring company handle your invoices, you can get the money you need a whole lot sooner than if you simply wait for the client to pay you directly. Furthermore, a factoring company can relieve you from the burdens of client-transaction paperwork, and in turn give you more time to focus on fleet operation.

When you explore the option of factoring, it’s crucial to choose a company that has transparent policies and a track record of satisfaction among customers. At FactorLoads, we’ve satisfied fleets for years by offering 24/7 full factoring services. As soon as a client is approved, the money becomes available in your account for easy access around the clock.

In the trucking industry, there’s enough work involved to simply transport items from one city, state or region to another. As such, you can boost your efficiency by employing the services of a freight factoring company. When you let FactorLoads handle your client invoices, you can focus on transporting items to your client’s location and not have to worry about immediate expenses. Contact FactorLoads today for a free quote on our factoring services.