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Freight factoring – How it works, its benefits, and more

Freight factoring – How it works, its benefits, and more

Freight factoring, also known as transportation or trucking factoring, allows trucking companies to get immediate cash flow and avoid delayed payments on outstanding invoices. The standard waiting period to get full payouts in a trucking business is between 40 and 50 days, which can be easily avoided by freight factoring. Read on to learn more about how it works, its benefits, some dos and don’ts, and more.

How freight factoring works
In the transportation industry, getting paid immediately is not a standard. Trucking companies have to wait months to clear invoices, making it challenging for their businesses to survive. Freight factoring allows trucking companies to submit invoices for same-day processing and get immediate funds. This helps both the freight factoring company and the trucking company. The factoring company receives a service fee for “fronting” the money to the trucking company, whereas the latter gets access to the funds instead of a long waiting period.

Benefits of freight factoring
Here is how freight factoring benefits trucking companies:

1. Offers cash flow
The major benefit of factoring is cash flow. Trucking companies that need to wait an extended period to get payments for the load they ran don’t have to do so, as factoring allows easy and quick access to cash. The transportation industry runs on the challenge of a lack of cash flow, and most companies are at the mercy of slow-paying clients. But with freight factoring, there is an influx of working capital that allows the companies to run their businesses more efficiently.

2. Improves customer relationship
Collecting client payments is time-consuming and puts the owner-operator in a spot when the client refuses to pay on time. This may create a sense of awkwardness between the trucking company and the client. By partnering with a factoring company, the owner-operator does not have to worry about invoice payments. All in all, factoring allows the trucking business to focus on its business needs while the former takes care of the regular and smooth payment flow.

3. Saves time
Freight factoring is a better option than traditional financing options, such as bank loans, merchant cash advance loans, or high-interest credit cards. A bank loan can take up a lot of time, which might not always be feasible. On the other hand, the freight factoring process is both time-efficient and cost-effective. Once the trucking company sells the invoice to the factoring company, they can expect to receive the funds in as little as 24 hours.

Tips to make factoring a better experience
Here are a few tips to make factoring a better experience:

1. Build a partnership
Trucking companies may want an experienced person who understands their business, knows their customers, and can provide ideas to grow the business. Although every invoice submitted to the factoring company is considered a business transaction, finding a factor that can become a partner in the long run is crucial. It is best to talk to other trucking companies and see which factoring companies they have partnered with and their experiences. Also, ask the factoring company about their different services and products and how they manage them with their existing clients. This will help to understand their business size and management skills.

2. Read the contract thoroughly
It is crucial to read the contract carefully. Do not sign it if there is any kind of vagueness in the contract. Most factoring companies ask for a due diligence deposit, but the amount depends on the size of the trucking business.

3. Ensure a transparent fee structure
Trucking companies need to know where their money is and how much they will receive for the invoices. A factoring company with a transparent fee structure will provide a clear understanding of the money flow and peace of mind.

4. Make sure the portal is easy to access
Factoring companies with 24/7 monitoring access help the trucking companies track every submitted invoice. It is important to look for a company that provides easy-to-access portals where trucking companies can quickly track everything, including collection notes, statements, and purchase orders.

5. Have a good reputation
Like in every industry, a good reputation goes a long way. Always look for a factoring company that has exceptional service and reputation. It is crucial to read online reviews to help shortlist the best ones. Once a factoring company is shortlisted, don’t forget to ask them questions before finalizing them.

Questions to ask the factoring company
Here are a few common and important questions to ask a factoring company when connecting with them for the first time:

1. Cost
How much does the factoring cost? Is there a fixed service fee? Is the fee negotiable?

2. Communication
Does the factoring company contact the customers of the trucking company directly?

3. Services offered
What are the other services the freight factoring company offers in addition to invoice factoring?

4. Time frame
How long does it take to get the funding? Is there a possibility of same-day funding?

Many trucking companies may be new to the process of freight factoring. Although the process may seem a bit daunting at first, with the right information and tips in hand, it can be a smooth road.

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