The freight invoice, at its basic level, is a piece of paper that the receiving party signs when you deliver a load. It has a signature that indicates they have accepted your shipment, of which they intend to pay you for the transportation of the cargo.
However, in most cases, after signing the paper, receiving the actual freight payment would take anywhere from weeks or even several months for a trucking company. Even if you have no invoice funding, your business must operate as you have bills to settle, and you will need a furl to deliver the next load.
That’s where freight factoring companies or trucking factoring companies work, as they exist to close the distance between getting a load and getting paid for it immediately. So how do trucking factoring companies work? That’s what you are going to learn from this blog.
Understanding Factoring in Trucking
Truck factoring financing is a way for trucking business owners to receive payments for the services they provide immediately. The factoring company handles the invoice payment collection and processes.
In exchange for these services, truck drivers would give up their little percentage of the amount they owed to their factoring company. More so, a factoring company will usually charge additional fees for the services, thereby reducing the amount earned on the load. However, drivers are always willing to take it to keep the operations going.
Why do Businesses consider Trucking Factoring Companies?
Many businesses consider trucking factoring companies because they need their cash flow going, not ninety days after rendering their services. Businesses give up a small percentage of the loaf value in exchange for faster payment. It’s just a small price to pay when you have fuel, maintenance, taxes, and other costs related to the business. Not to mention your pay to yourself.
Advantages and Disadvantages of Factoring Service for Trucking
Like everything in life, there are ups and downs when you turn into trucking factoring companies. This process has gained popularity in recent years for good reasons. However, it still has issues and downsides.
If there are no viable solutions, most companies will not participate in factoring agreements. And since it’s an alternative funding opportunity, there are also significant benefits such as:
* Faster funding is among its biggest benefits. The trucking business may advance its receivables within days instead of waiting for weeks or months.
* If the credit history is questionable, then it’s not a big deal at all because the invoices would serve as collateral. It’s just so easy to qualify for freight factoring that even businesses that are just starting and with no proven credit histories can avail.
* The business could grow faster as there is cash in hand. It means you will no longer have to turn down the company while waiting for the receivables.
* Trucking factoring companies are free to handle other operations without gaps in the cash flow.
Of course, you don’t want to jump into anything without having the facts. You must be aware that there are a couple of downsides with freight factoring. And if you are prepared enough before you enter an agreement, then it may not be a cause of trouble. Here are the downsides you should know.
* The agreements can be free, yet fees must be expensive. You have to ensure you can keep up with the fees and never lose your money on the deal.
* If the customer does not pay, the lender could cost more on future deals.
* You could lose control over the accounts receivable process mainly because trucking factoring companies take over the invoices with the customers. This also means that the customer pays the company, not the business.
* Some agreements contain provisions you should commit to sending the invoices to the factoring company.
How Businesses Qualify for Freight Factoring
As you know, factoring companies must have entirely different standards of qualifications. It depends on the trucking business’ size. And while it’s easy to secure a factoring agreement, there are still standards to follow. And regardless of the size of the business, factoring companies expect the invoices due within the next three months to qualify.