How Freight Factoring Actually Works

If you own a trucking company and are tired of facing cash flow issues, streamlining your cash on hand through your Accounts Receivable is a major advantage that many U.S. carriers large and small are beginning to incorporate as part of their overall financial toolkit. If your customers typically take 30 to 60 or even 90 days to pay on their invoices, freight factoring, also known as transportation factoring, is helpful because it allows you to secure your funds upfront by selling those invoices right away at a discount. 

Furthermore, the third-party factor that buys the invoices upfront and collects on them on your behalf is essentially freeing you up to focus your time and energy on more important elements of your business.

Factoring in Action

Let’s consider factoring in action. Let’s say your trucking company delivers a load for a customer with a 90-day payment term already negotiated. As a carrier, unexpected costs might arise, and if you can no longer wait three months to pay the driver, the fuel bill to deliver that load, or other fixed costs associated with running your business, there may not be enough cash on hand for you to meet your expenses. 

With the convenience of freight factoring, you can sell the outstanding invoice upfront at a discount. The factoring company you work with will advance you sometimes up to 97% of the value (and charge you a minor factoring fee in the process), which now gives you the money you need to cover the expenses of that delivery, and to take on new contracts.

Furthermore, the factoring company will now collect on that invoice on your behalf, allowing you to spend your time chasing down leads and growing your company. Once they collect on the original invoice, that 3% reserve held back from the advance is remitted to you. If you’re still curious about the process and about available plans, learn more here to better educate yourself on the nature of factoring and your options.

Easy and Fast Application Process

Getting approved for freight factoring is easier and faster than being approved for a bank loan and is much cheaper than predatory online cash advances. It’s also a boon for startups and small trucking companies without the most collateral in the world, as approval is based in part on the credit history of your customers. This means that so long as you deliver for reliable, successful companies, you will be able to factor their invoices.

No collateral? Not an Issue

Because the best factoring companies will not require that you put up personal collateral to guarantee approval, factoring does not need to be secured by assets. Regardless of your size or your collateral, you are likely to be approved for a factoring plan.

If you own a trucking company of any size, and your customers have fantastic credit but are simply too slow to pay on time, you should consider a freight factoring company who can help you manage your accounts receivable and improve cash flow. 

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