You’ve probably heard the phrase “freight factoring” if you work in the trucking industry. Since freight factoring helps owner-operators and trucking corporations get paid faster, it has become more common. But many motorists and company owners don’t know what it is or how it operates.
Many people in the trucking sector might gain monetarily from the availability of working capital made possible by freight factoring. Owner-operators, in particular, have to spend as much time managing their money as they do driving. Suppose you’re wondering whether or not a transportation factoring firm is an appropriate choice for your business. In that case, our comprehensive guide to freight factoring will provide you with all the information you need to make an informed decision. We’ll walk you through the process, answering any questions you may have along the way.
So, what exactly is freight factoring?
Instead of waiting 30, 60, or even 90 days to get paid out on a load, freight factoring, also known as trucker factoring, will accept your invoices for the loads you’ve run and enable you to be paid on them immediately. This provides a welcome injection of operating money to tide the company over until it receives payment on outstanding invoices.
Due to the lengthy payment processing times in the trucking sector (40 days or more), this becomes an essential tool for running a firm. A freight company’s financial stability is on the line during these waiting periods, and some have been forced to seek other revenue streams.
When there are more “payouts” than “pay-ins” on the balance sheet, many people in the past turned to bank loans or even credit cards to keep afloat. It’s not only a balancing act but may cost trucking businesses thousands of dollars in interest payments over time.
Freight factoring is a service where a business or owner-operator makes delivery as usual. Still, instead of waiting to be paid, they “sell” or transfer the invoice to a financing firm. This client “buys” the invoice for a fraction of the due amount but makes up the difference by paying promptly. With the cash in hand, the freight firm may continue operations as usual while the freight factoring company handles the billing and payment processes.
This kind of immediate payment may appear like a godsend to the weekly or monthly budget of certain freight firms, notably more minor or privately held enterprises, enabling them to meet obligations without going into debt. On the other side, some people will be pretty wary about the expenditures involved in the deal.
To your relief, we have included a comprehensive explanation of the factoring process.
How does freight factoring operate?
For some truck drivers, the ability to be paid fast is crucial to their livelihood. With factoring, you may send your bills to your factoring provider and be delivered the whole amount owed the next business day rather than waiting weeks to get paid. You now have access to the funds necessary to keep your company afloat. Every successful business deal relies on mutually beneficial incentives, and factoring is no exception.
Instead of waiting weeks or months for payment, the freight firm or owner-operator may be paid right now. When buying from the driver, the freight factoring firm is incentivized by the percentage they charge or “leave out” of the invoice, which they recoup when they collect from the consumer. Finally, the consumer is incentivized since they are dealing with a more prominent firm that can wait for payment rather than a tiny freight business that needs the money immediately.
How should one qualify?
Compared to obtaining a conventional bank loan, factoring approval is uncomplicated and quick. Employing the services of a factoring company that specializes in the trucking sector will provide the shortest possible financing method, as well as dependability, correctness, and transparency in all business interactions.
Some factoring companies serve many markets, enabling them to divide their resources over a broad spectrum of customer needs and different industrial requirements. These factoring companies have less familiarity with the particular issues encountered by the trucking industry. In addition, they need a huge quantity of paperwork and a considerable amount of time to do their due diligence.
Freight factoring companies primarily serve the transportation sector. These industry experts give a better experience for their clients by making their services as simple and comfortable as feasible to use. The certification requirements are simple, and the quantity of supporting documentation necessary to complete the process is minimal. If you need cash urgently, look for a factoring company that has a straightforward application process, requires minimal credentials, and has the infrastructure to execute credit checks, UCC filings, and legal documentation quickly.
A reputable factoring company will have an easy-to-use online form to begin with. In addition, they will be able to process applications and collect payments within two days if the consumer provides the following information:
- A copy of the company’s articles of incorporation
- Two kinds of identification are necessary, including a valid driver’s license.
- Carrier Package
What services do freight factoring agencies offer?
Finding the right factoring firm requires understanding the standard services offered to truckers and what makes that organization special. Each is present at TAFS. Our first-rate factoring services will buy your outstanding bills and have you rewarded with early payments, often within only an hour. TAFS offers more than just factoring; we also provide premium services that will keep you ahead of the curve. Let’s take a peek at the inner workings of invoice factoring:
- First, a business (the client) requires shipping from point A to point B.
- They then employ you to transport it, and you verify with your factoring firm to see whether the cargo is eligible for their services.
- If yes, step 3 is to transmit the invoice and other necessary documents for the cargo to your factoring business as soon as possible after delivery. (Most paperwork nowadays is uploaded digitally or submitted via a smartphone app.)
- They then pay that invoice to you or your business.
- After that step, the factoring firm will pursue payment from the client.
There may be some different procedures required for certain circumstances. For the sake of this article, factoring applications should be compared to health insurance and credit card applications. Businesses and sole proprietors must actively seek out and apply to factoring firms. The specifics of the factoring agreement will be settled upon after reviewing this application.
If you’re looking for a reliable business partner to provide these customers with top-notch factoring services, Logity Dispatch can help you find one. Learn what to look for in a trustworthy business associate, how to locate the ideal factoring partner for your needs, and how to take advantage of the professional support we provide to each and every one of our clients. For more details, please check out https://logitydispatch.com.