The Answer – All Guide To Freight FactoringApr 3, 2019 / Posted in Uncategorized
If you’re new to freight factoring, you probably have questions. We’ve got the answers for you below!
What Is Freight Factoring?
Sometimes referred to as freight bill factoring, freight factoring is a financing method. “Factoring” generally means:
- Purchasing invoices for freight already delivered
- Advancing money on accounts receivable
- Paying a reasonable fee the convenience of having immediate access to funds
- Receiving your payment when your customer pays after the factoring company deducts their fee
What Is a Freight Factoring Company?
A factoring company purchases invoices at a discounted rate. In exchange, you’ll receive a percentage of the invoice amount up front (advance rate). The remainder is paid when the customer pays.
Why Consider Freight Factoring?
- Quick access to funding
- Having a steady influx of cash to keep operations going
- It’s often easy to qualify
- Financing allows you to grow your business without worrying about cash flow interruptions
How Much Do Factoring Companies Charge?
Typically, factoring companies charge discount rates on invoices that are factored. Fees may be handled in the following ways:
- Average discount rates of 2-5% for smaller companies
- Average rates of 0.5-5% for larger companies
- Flat rates for all companies/trucking operations
- Variable rates
What’s the Difference between Flat and Variable Rates?
Factoring companies sometimes offer flat rates. Others offer variable rates. Here’s what you need to know when it comes flat rate vs variable rates:
- Variable rates will fluctuate over time.
- You may end up paying lower rates with some invoices and higher ones for others with variable rates.
- A flat rate means you pay the same rate for all invoices you factor without the need to worry about fee or interest rate fluctuations.
- Having a flat rate means you’ll always know how much will be deducted from payments sent by your customers.
What’s the Difference between Recourse and Non-Recourse Factoring?
Recourse and non-course factoring are common options with arrangements of this nature. When it comes to recourse vs non-recourse factoring, keep the following details in mind:
- With non-recourse factoring, the factoring company assumes the risk if a customer fails to pay.
- With recourse factoring, you would be responsible for any losses if a customer does not pay.
- Most factors are recourse to avoid the risk of unpaid accounts.
Is a Contract Necessary for Factoring?
There are two types of factoring arrangements. These are spot factoring and contract factoring.
- Spot factoring allows you to decide which invoices are factored.
- You are not required to submit all of your invoices with spot factoring.
- Contract factoring means all of your invoices will be factored with a freight factoring company.
- The length of contract obligations can vary based on your specific arrangements with a factoring company.
What Is the Notice Period?
Factoring companies typically send a Notice of Assignment to any of your customers whose invoices they will be financing. This notice informs them that future payments should be sent to the factoring company. The notice period is often considered as the time from when a customer receives this notice to the point when they make the payment for the delivery that was made.
What Should You Look for In Freight Factoring Company Reviews?
Reviews posted online or a factoring company’s website can give you an idea of what you can expect when working with a particular company. We recommend paying attention to the following details in freight factoring company reviews:
- Experiences with existing or previous operations using a particular factoring company
- How responsive they are when trucking companies or owner-operators need to contact them
- How well they are able to process invoices and send payments
What’s the Bottom Line with Freight Factoring?
Freight factoring isn’t right for every situation. However, it may be an option worth considering for
- Smaller, owner-operator setups with just a single truck
- High-volume companies
- Smaller operations with regular, reliable customers looking for a cost-effective way to expand
Contact us today to learn more about freight factoring.