What Is Freight Factoring?
Freight Factoring is a process for trucking companies to sell invoices for delivered products to third parties. The trucking company then receives money immediately from the third party, and the third party collects the money when the invoice is paid instead of the trucking company, according to Apex Capital.
Trucking companies use freight factoring to keep cash flow moving. Freight factoring companies, such as TBS factoring company, deliver cash to trucking companies immediately in exchange for taking a percentage of the invoice amount. Using TBS Factoring as an example, some freight factoring companies offer other services in addition to cash advances on invoices. Factoring companies may have job boards that drivers can search to find loads and insurance to keep a truck in legal compliance.
Credit Checks on Customers
One service that Freight Factoring services offer that helps trucking companies is credit checks on customers. Hauling a load for a customer with bad credit can mean you never get paid, so when a freight factoring service is considering taking over your invoice, they perform the credit check for the trucking firm. This provides instant information about finances, so the trucking firm doesn't end up completely shut down or waiting on money that isn't coming.
Not a Loan
Freight factoring isn't a kind of loan, according to Factor Finders. That means the trucking firm doesn't have to pay anything back later. It does, however, mean the trucking firm is accepting a bit less, usually around two percent less, for loads delivered. The advantage is receiving same-day cash, and the disadvantage is making a bit less money in the long run.
Deliver and Invoice
When freight factoring, a trucking firm delivers the load normally then submits a copy of the invoice, or freight bill, to the freight factoring company, according to Factor Finders. Some freight factoring companies also require a copy of the bill of lading, signed proof of delivery or a rate sheet. There are several ways to submit your documents to a freight factoring company. The ways to submit paperwork include scanning it, faxing it and emailing it in for confirmation.
Get the Cash Advance
After the freight factoring company confirms your load was delivered, a cash advance is instantly provided. The cash advance may be up to 98-percent of the invoiced amount, according to Factor Finders. Most freight factoring companies have a set time that trucking firms have to turn in invoices if same-day cash is needed. Invoices submitted after this time are typically paid the next day. Funds are paid by most factoring companies by wire, check, automated clearing house or by loading onto a trucking firm's fuel card account.