How to Improve Cash Flow
How to Find the Best Factoring Company
In this guide, we review the basics of freight factoring, some of the common questions people ask, and some important things to look for when you're shopping for the best factoring company. We know that running a successful trucking company can be complicated, so deciding whether factoring is right for you, and who the best factoring company is, shouldn't be.
What is a factoring company?
A freight factoring company purchases account receivables (invoices) from a trucking company for a fee. Factoring allows companies to get paid faster and it is especially helpful for managing cash flow when a carrier is working with brokers or shippers that offer payment terms of 30 days or more.
What is Freight Factoring?
- You haul and deliver a load for your customer.
- You send the load's paperwork and invoice to your factoring company.
- The factoring company buys the invoice and you receive payment from them.
- The factoring company sends the invoice to your customer.
- The factoring company collects payment from your customer for the invoice.
Who uses factoring companies?
Factoring has been used in many different industries for hundreds of years. Factoring for the trucking industry, by comparison, has been around for several decades, and that's what we'll focus on.
There is a common misconception that factoring is a last resort for companies who are failing. However, this isn't the case. Every month, there are hundreds of new trucking companies being formed and granted motor carrier operating authority. It's especially difficult for new and small businesses to qualify for traditional financing from a bank, so many use factoring to manage cash flow and to avoid accumulating massive amounts of debt.
More established trucking companies use factoring to grow their businesses. They rely on a steady stream of debt-free cash from factoring their account receivables as opposed to dealing with the debt that a bank loan, or increasing a line of credit, can cause. Established carriers can also choose a factoring company to streamline cash flow, check credit on their customers, and outsource collections.
Many factoring companies advance you the money you need within 24 hours of purchasing your freight invoices. Some may take longer, so ask about processing and cutoff times.