If you own or manage a freight company, you may be looking to expand your service area and customer base. At the very least, you need a steady business income to keep your business alive and well. However, running your business smoothly becomes difficult if you’re forced to suspend or pull back your operations while waiting for a client to pay up.

To surmount this nagging cashflow challenge, you may wonder about freight factoring, a practice in which freight companies transfer their haul invoices to a financial services company for a fee.

Now, the question is whether or not you’re better off financing your own loads or having a freight finance company help. Here are a few questions to better understand whether to partner with a factoring company or work directly with customers to get paid for your hauling services: 

Factoring Loads vs. Self Financing: What’s the Difference?

Freight factoring (also known as invoice factoring) is a helpful service for many trucking business owners.

It ensures you get paid within less than a week or – depending on the factor – even the same day, of delivering a load. This is true no matter how long it takes a customer to pay. Many factors will also allow you to run a free background check on your customers, which can help determine whether you may face issues acquiring payment, helping you choose a more profitable customer. (Shameless plug: We pay the same day, and we offer free, unlimited credit checks for our clients.)

On the other hand, many owner-operators choose to get paid directly by their customers and/or have enough cash to self-finance their business. Larger trucking fleet owners (running ten or more trucks) often have a full staff to run their operations smoothly.

There isn’t a wrong answer to how trucking companies should operate, but there are a few questions that you can ask yourself to determine whether factoring is right for your business.

3 Questions to Determine Whether You Need Factoring

1. Does my trucking business have a healthy cash flow?

A healthy or positive cash flow means you have more money coming into the company than you’re expending. If your cash flow is positive, allows you a comfortable lifestyle, and you don’t have or foresee major expenses coming (such as purchasing or repairing costly trucking equipment), then you may not need freight factoring. 

On the other hand, if your cash flow is tight or you do foresee major expenses in your future, a freight factoring partner is worth considering. The primary benefit of invoice factoring is to fill in the time gaps in cash flow.

2. How often am I dealing with invoices?

If you’re spending a large percentage of your downtime sifting through paperwork for the week’s hauls – or paying someone else to – a freight factoring partner can ease the burden. Many truckers only have so much time relaxing at home or with family and friends between hauls and would rather not use that time working without pay.

If you find yourself using your downtime to work through business operations and chase down customers for payment, it’s worth considering a factoring partner. Many factors are well-versed in trucking operations and have the right staff to help you with your back-office operations. On the other hand, if you’re not consistently hauling freight, haven’t yet secured your license and/or loads to haul, or run a large trucking company with a full back office team in place, you may not need a factoring service. 

3. Have I built a solid relationship with my clients?

In addition to streamlining payment from your load pickup to delivery, freight factoring reduces your interaction with your clients. Immediately after you sell your invoice, the freight factoring company continues most, if not all, of the business interactions you would have otherwise made with the client. Make sure you’ve built a strong relationship with your clients and communicate the payment setup with them. Many factoring services can also help you secure more loads, depending on the business network.

Benefits of Freight Factoring

Freight factoring, also known as invoice factoring, is a lifesaver for many businesses. 

Many small freight companies have survived industry downturns with the help of freight financing. Here are a few ways using a factoring company can help your business in the long term.

Keeps The Business Debt-Free
The absence of the freight factoring option may leave transportation businesses at the mercy of banks and other conventional lenders to finance their business. In this case, if cash flow becomes a problem, the trucking company may have difficulty keeping up with financially burdensome interest rates, ranging from 5% to 30% depending on various factors. In the long run, especially for smaller operations, this practice isn’t sustainable and can quickly plunge the company into debt.

Immediate Funding for your Loads
The procedure for obtaining a bank loan could drag your loan application for several days — a luxury you cannot afford. However, one advantage of freight factoring companies is a swift release of funding. Better still, you could reach an understanding with your freight factoring company that will make them release funds to you as soon as you deliver a load. This allows you to fuel up for your next run or process your driver payroll quickly.

Free Client Credit Checks
For freight factoring companies to take over payment processing from you, they need to ensure that your clients have what it takes to fulfill their end of the transaction. Freight factoring companies have to perform credit checks to determine the creditworthiness of their customers. Why does that matter? If your factoring company won’t approve the shipper or broker, it is likely because their credit hasn’t been established for long enough or they may have a history of not paying carriers. Factoring companies’ experiences with your customers can keep you from being in a no-pay situation.

No More Long-Term Contracts
Top freight factoring companies help your business avoid long-term contracts and minimums. You have the option to use freight factoring services only when you need them, and may only have to renew your contract annually or bi-annually. However, it’s essential to always read the fine print in the contract when reviewing freight factoring companies to work with. Some of them charge you high amounts before you can opt-out of the contract.  Also, always check for hidden fees.

Conclusion

Trucking companies, especially small ones, require a steady cash flow to stay alive. However, the gap between load delivery and payment could take too long and will slow down the company’s growth. If your company is battling this challenge, freight factoring can save the day. 

Besides helping to maintain a steady cash flow, there are many other benefits freight factoring can deliver to your business. However, freight factoring isn’t good for every business. You need to answer key questions before selling your company’s invoice. Nevertheless, if your company thrives with invoice factoring, it can make a big difference in your company’s growth. 

If you’re ready to get started with Express Freight Finance, request a quick quote or submit your application and someone will be in touch with you soon. 

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