Freight Factoring: Frequently Asked Questions

Factoring is a service offered by financing companies that allows you to factor (or sell) your accounts receivables to a factoring company. The factor pays you against your outstanding invoice for a small fee and then goes on to collect payment from your client. This allows you to better manage your operational expenses as you no longer need to wait out long credit terms to gain access to your hard-earned money.

Here is all you need to know about freight factoring, a specialized factoring program that caters to the transportation industry.

What is freight factoring?
Freight factoring is a specialized service that caters to trucking and transportation companies, helping them grow and succeed in a competitive industry by giving them funding that they can use as working capital.

Scores of trucking companies are opting to factor their unpaid invoices in order to have sufficient funds to pay their drivers on time, fuel and maintain their fleet and meet other operational costs to keep the business running.

Does a trucking company need a perfect credit score to consider factoring?
Factoring companies don’t worry much about your credit score; they are more interested in the credit score and market standing of the client whose invoices you intend to factor.

They carry out necessary checks to ensure that your customer is reliable enough and the payment made to you against an invoice should not turn out to be a bad debt.

Therefore, even if you don’t have a great credit score, a factoring company will still want to do business with you, unlike conventional financial institutions that won’t loan you money if you do not meet stringent approval criteria.

How do I choose a factoring company?
There are scores of factoring/financing companies out there vying for your business. When choosing a factoring agency, the most important criteria include the factoring fee charged by the company, their experience and expertise in catering to your industry and your type and size of business, and the terms and conditions of the factoring agreement.It is advisable to choose a factoring company that specializes in freight factoring, will not pester you for a long-term contract, will not ask you to commit to factoring all your invoices, and will not bill hidden fees and charges once you starting using their service.

Do I need to factor all my invoices?
Some factoring companies do require clients to sign an agreement to factor all their invoices with them; however, it is better to opt for a company that allows you to pick and choose which invoices you want factored.How long does a factoring company take to approve my request and process a payment?In most cases, your business will be approved for invoice factoring in as little as one to two days. Once approval is granted, you can start presenting the load invoices you want factored and receive instant cash for up to 95% of invoice face value.

Will the factoring company come after me if a client does not pay up?
Not if you choose non-recourse factoring, in which case you are freed of any liability if a customer does not process payment against an invoice you factored. The fee for non-recourse factoring is, thus, higher than that of recourse factoring.Can I choose not to disclose to my client that I am factoring their invoices?Yes, you can choose to opt for non-notification factoring, in which case the factoring company will not notify your client that you have factored their invoice.

How do I get an invoice factored?
Each factoring company has its own process; in most cases you are required to simply email the bill of loading along with the invoice to the customer service team. The payment process is fast and simple, so you can expect to receive funds in a matter of hours.

What is a fuel discount program?It is a special perk offered by freight factoring companies to help you save on fuel costs, which is one of the major expenses of a transportation business. The factor issues you a fuel discount card that you can use at partner fuel stations to get a discount each time you fuel your trucks.

Many freight factoring companies will offer a low invoice factoring rate but will then bill surprise fees and charges. To avoid falling into the trap of dirt-cheap pricing, look for a reputable and reliable factoring company that will not bind you with a long-term, exclusive contract and will offer transparent terms of service that you can understand easily.

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