Freight Factoring 101: A Comprehensive Guide for Trucking Companies

In the fast-paced trucking industry, managing cash flow effectively is a key component to growing and thriving for companies of all sizes. Freight factoring is one of the simplest ways to maintain steady cash flow and support operational expenses. This comprehensive guide is intended to clarify freight factoring and give trucking businesses the knowledge they need to make sound decisions about utilizing freight factoring services.

What is Freight Factoring?

Freight factoring, sometimes referred to as invoice factoring, is a financial transaction where a trucking company sells its invoice (accounts receivable) to a third party, a factoring company, at a discount. The factoring service then provides fast payment to the trucking company once the load is successfully delivered rather than typical net 30- or 60-day payment terms from shippers. Factoring services like DropPay by Express Freight Finance can even provide instant payment upon delivery. Call 855-DROP-PAY to learn more.By providing speedy payments, factoring services provide trucking companies with the peace of mind to know that they can cover expenses like fuel, repairs, and payroll. It also provides them with growth opportunities.

How Does Freight Factoring Work?

While choosing to factor freight is a major business decision, the factoring process itself is pretty straightforward. The trucking company sends invoices to be factored to the factoring company. The factoring company then pays the trucking company a portion of the invoice (the percentage paid is laid out in advance in the factoring contract) and manages the collections process with the shipper or broker.

The Benefits of Freight Factoring

The benefits of freight factoring stretch beyond the immediately obvious benefit of getting paid for invoices quickly. Many factoring services offer additional services, benefits, and discounts to their customers that can make running a trucking business both simpler and more lucrative.

Improved Cash Flow

Access to immediate funds helps manage the gap between delivering services and getting paid. These funds may allow trucking companies to take advantage of lucrative opportunities and invest in their future.

Less Time Spent on Administrative Tasks

Nobody enjoys the task of collections. Factoring eliminates the time and effort spent chasing payments, allowing owners and admin staff to focus on core operations.

Credit Flexibility

Factoring companies often provide credit checks on potential clients, which helps trucking companies make informed decisions about taking on new business.

Fuel Advances and Discounts

Services like fuel advances, fuel card programs, and fuel discounts can help trucking companies cut their operating costs and improve their profit margins on each load. Express Freight Finance offers both fuel advances and a fuel card program that provides access to discounts at hundreds of truck stops across the country.

Access to Technology and Other Services

Many factoring companies have partnerships with tech and service providers in the industry or have even created proprietary technology that can help their customers thrive. For example, Express Freight Finance offers their customers access to their MarketFit tool which offers the latest insights into the trucking market broken down by lane.

Choosing the Right Freight Factoring Company

Selecting the right factoring partner is critical. Here are some factors to consider:

Rates and Fees

Compare the rates and fees charged by different factoring companies. Factoring companies use different rate structures and it’s important for trucking company stakeholders to understand the options available and what they might mean for their company. Oftentimes, factoring companies will entice carriers with lower rates but gouge them on the back end through other fees. Make sure you thoroughly understand your agreement. At Express Freight, we have zero hidden fees.Please reach out to one of our factoring consultants to learn more about the differences with EFF.

Terms and Conditions

It’s important to be very clear on the terms and conditions, including any minimum volume requirements or long-term contracts. Look closely at what it takes to get out of the contract in the event that the factoring company doesn’t work out or you need to change how you’re using factoring services.

Some factoring companies will require you to factor every invoice and charge you if you don’t factor enough volume each month. At Express Freight Finance, we have no monthly volume requirements and allow you to choose the customers you want to factor.

Reputation

Research the factoring company’s reputation in the industry. You can check ratings on industry websites, ask for testimonials or references from the company itself, or even ask your industry contacts if they have any experience working with the company. Google reviews can serve as an initial qualifier for quality factoring companies.

Customer Service

Consider the level of customer service and support provided. Some factoring companies may even offer different levels of customer service for different types of contracts. Be sure you understand what customer service can offer you based on the factoring agreement. At Express Freight we offer a dedicated account manager to ensure each customer receives the attention they need to make factoring a great business decision.

Conclusion

Freight factoring can be a powerful tool for trucking companies, providing them with the liquidity needed to keep their wheels turning. By understanding how freight factoring works and carefully selecting a factoring partner, trucking businesses can ensure a smoother financial and operational road is in front of them.