Factoring for Trucking Companies
To keep your fleet moving, you need to get paid for your loads. But here is the challenge truckers face: a lot of customers pay on slow billing cycles. It might take them 30, 60 or even 90 days to pay on your invoices. During that time, there can be a significant disruption to your cash flow, which makes it hard to keep your fleet on the road.
What is the solution? A service called trucking factoring. In this guide, we will explain what trucking factoring is, and how it can help you receive payments within a day or less for your hauls. We will also point you toward some top trucking factoring companies to consider working with.
What is Trucking Factoring?
Factoring is a way for you to get paid fast, instead of waiting up to 90 days for your customers to clear your invoices.
The factoring company purchases your accounts receivable. They do so at a discount. The difference is the cost you pay for their services. They pay you immediately, and then the customer pays them on their normal schedule.
How Trucking Factoring Works
Let’s break it down into steps so you can better understand the factoring process.
1. You deliver a load and submit an invoice to your customer.
2. The company signs the invoice and returns it to you.
3. You submit a copy of the invoice to the company you are using for factoring.
4. After rapidly verifying the invoice, the factoring company pays you. This process may take a few days, or even less, depending on the company. They purchase your invoice at discount. So, for example, they might pay you 95% of the amount (or some other percentage they stipulate).
5. The factoring company gets paid the full amount of the invoice by the customer.
That’s it! The factoring company handles most of the work of dealing with the customer, freeing up your resources so you can focus on other things. You get paid right away and can continue to operate as usual rather than waiting on your customers.
“But, what if the customer never pays the invoice?” you might be wondering. That is a good question. There are two different types of trucking factoring:
- Recourse: With recourse factoring, you will be on the hook if the customer never pays. At that point, you will have to pay the factoring company.
- Non-recourse: With non-recourse factoring, you are not on the hook if the customer falls through. You do not have to pay the factoring company back. Due to the higher risk associated with non-recourse factoring (for the factoring company), the company charges more for it.
Key Benefits of Using A Factoring Company For Trucking Businesses
There are many advantages to using a trucking factoring service. Here are some reasons to consider it:
- Get paid immediately. It can be a major inconvenience to have to wait around 30-90 days to get paid on each of your invoices to customers. But with trucking factoring, you can get paid right away. Some services even let you get paid within an hour.
- Maintain a steady cash flow. Since you are able to get immediate payments, you no longer have to worry about your cash flow drying up because a customer is slow to pay. You will have less unpredictability to deal with and greater financial ease and peace of mind.
- Avoid borrowing money through other means. One of the biggest issues with cash flow disruptions is that many truckers resort to expensive business loans from banks or they rely on credit cards so they can keep operating. But when you incur debts while waiting on customers to pay, you end up owing interest. You can steer clear of that situation by using factoring instead. Even with the cost of factoring, you may still end up saving a significant amount of money.
- (Potentially) protect yourself from non-payment. Nothing is worse than delivering a load and spending time and money to do it only to have the customer completely fail to pay on your invoice. Not only did you not profit from the job, but you lost money doing it. If you get non-recourse factoring, you do get paid by the factoring company, and you do not have to pay it back if the customer falls through. So, in a way, it is a bit like insurance. You pay more for it, but you have one less thing to worry about.
- Use it when you need it. If you work with a factoring company that does not set minimums, you may have the option of just using the factoring when necessary. If you have good enough cash flow the majority of the time where you do not require it, you can just have your customers pay you directly. But at times when you might need a swifter payment, you can go through the factoring company. This helps to keep your costs down.
- Your credit score is irrelevant. If you were going to apply for a loan to cover business expenses while waiting on customers to pay, you would need to have a good credit score to qualify. But your credit score does not matter when it comes to factoring. Only the credit of your customers is of any significance since they are the ones that need to pay. That means that factoring services are more accessible than loans.
- Protect your credit. Continuing off of the above, let’s say you do take out a loan to cover expenses while waiting to be paid, and something goes wrong, and you cannot pay it off in time. That would damage your credit. When you use factoring services instead, you do not have to worry about this. You can maintain your high credit.
- Streamline your accounts. Trying to get customers to pay on their invoices can be a time-consuming, frustrating hassle that diverts your resources away from other things. When a factoring company is in charge of collecting on customer accounts, you get to avoid all that hassle.
- Enjoy other advantages. You will discover that factoring companies go out of their way to make life easier and more economical for their customers in a wide variety of ways. When you pay for factoring services, you may be given access to fuel cards, credit check tools and more.
What Does Freight Factoring Cost?
Factoring for trucking has many benefits, but can you afford it? There are many factors that influence the cost of trucking factoring. The price you are paying for factoring is the difference between the amount of your invoice you receive and the amount that the factoring company receives from your customer.
Some freight companies have fees and minimums to watch out for, so make sure you are on the lookout for those. Thankfully, there are companies that are transparent about their pricing and do not have these extra charges.
Best Factoring Companies for Trucking
Now that you understand what factoring is, how it works, and its benefits and costs, we can take a look at some top recommended freight factoring companies.
TAFS is a factoring company that has been around since 2007, and quickly became one of the top factoring providers in the industry. They focus on providing rapid payment (as fast as 1 hour) to truckers, and on offering handy extras (they purchased ProDispatch in 2017 to help their customers find more lucrative jobs).
Why You’ll Love It
TAFS is a great choice if what you are looking for in a factoring service is speed and transparency. They also bring you lots of useful extras that help you cut costs, like discounts on fuel and a line of credit. You can run free credit checks through TAFS as well.
Take note that TAFS offers recourse factoring only.
2. OTR Solutions
If you are in search of trucking factoring with DAT network integration, you should consider working with OTR Solutions. A simple blue checkmark in the DAT load board lets you know whether OTR Solutions is willing to factor a load or not. You can use OTR Solutions for recourse or non-recourse factoring.
Why You’ll Love It
Like TAFS, OTR Solutions provides a lot of extra features and benefits. These include a mobile app, credit checks, fuel advances, and full customization. This company also receives accolades for the quality of customer support it provides.
3. Riviera Finance
Those who are interested in working with a really well-established freight factoring company should check into doing business with Riviera Finance. This company has been doing factoring for trucking for more than 50 years. Its focus is on non-recourse factoring.
Why You’ll Love It
An online portal, credit checks, a fuel card, and other great benefits make Riviera Finance stand out. This company is also renowned for its excellent customer service.
Get Started with Freight Factoring Now
Trucking factoring can streamline your invoicing and accounts, reduce gaps and disruptions in your funding, and help you keep your fleet moving and revenue streaming in. If you are ready to get started, click on any of the links in this post.