What is factoring and how to choose the best factoring company

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best factoring company

When you own a trucking or freighting company, there are a lot of variables that you have to deal with as you do everything you can in order to improve your business, beat out your competition and continuously grow.

One of the variables that you like have dealt with for as long as you have owned your business is the issue of sometimes not having the liquid cash that you need in order to keep up with all of your crucial costs. From upkeep and maintenance, to advertising, to payroll and more, there is never a shortage of payments that any trucking business owner needs to keep track of.

What is so frustrating about being low on liquid cash as a freight business owner is that you most likely could have the money you need if only all of your clients and customers were to complete their outstanding invoices. Well, that is exactly where a great factoring company can come in and help you in as short as one business day.

If you are thinking about using truck factoring to help your business continue its growth, then you are going to want to learn all you can about the process in which truck factoring is used for businesses just like yours. Luckily, you have come to the right place!

Let’s break down what factoring is, how it can help you and how to find the right truck factoring company for you to work it.

What is truck factoring?

This is, of course, the most important question that you are going to want to get the answer to right off the bat.

Basically, truck factoring is a resource in which a company provides quick funding to a company like yours where the value is based on the value of unpaid freight invoices or bills. It is certainly one of the most popular methods of funding in any invoice-based industry because of how quickly those in need of liquid cash can get access to the money that they need.

Instead of waiting for your customers to complete the invoices you have sent them to get the money that you need, you can instead apply to take advantage of truck factoring in a quick and easy application process. From there, you will get the money that you need to pay your own bills.

Truck factoring companies are known to pay as much as 95 percent of the total value of the unpaid invoices. From there, they take on the responsibility of actually making sure that those invoices get paid by your customers.

Another incredible benefit of going the route of truck factoring – as opposed to trying to take out a business loan for example – is that your credit score, or the debt history of your company will not be considered during the application process. Instead, the credit scores of your customers who have yet to pay their invoices will play a major role in the application process.

So, just to wrap up simply, truck factoring – or freight factoring as it is also often called – is the process in which a carrier (that’s your company) sells the invoices for loads that they have already hauled, but have not yet gotten paid for, in order to get cash immediately. So, instead of waiting days, weeks or even months to get that cash, you can use that cash immediately.

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From there, the factoring company takes a percentage of the invoice (often as low as five percent) as a fee. Overall, factoring is one of the most common ways that trucking companies improve their cash flow. It is especially useful for newer companies who are still dealing with a large number of startup expenses.

Factoring contracts can last for as little as a few months and are known to last as long as a year or more. Moreover, they can be worth as little as a few thousand dollars to as many as several million!

The beauty of truck factoring is that the contract can grow as your company grows.

How to choose the best truck factoring company for you?

Just like any business partnership that you are considering, you want to make sure that you are making the very best decision for you and your business in terms of what truck factoring company you end up going with. While most truck factoring companies operate basically the same as others, there are some definite differences that you are going to want to be aware of.

We’ve broken down all of the differences that you are going to want to be aware of in order to make sure that you are making the best decision possible. Let’s get started!

They make an effort to stay in touch with you

One of the first things to keep tabs of is how well a given truck factoring company is at keeping in touch with you after you have initially reached out. That means finding a company that is organized and experienced enough to make sure that they are keeping track of you throughout the inquiry and application process!

The reason why this is so important is because you need to be confident in your ability to reach out to, and hear back from, your trucking company throughout the entire lifespan of your contract.

You should not only think of the fee that you are paying from your invoices as a fee to get the cash, treat the fee as the cost of a service that you are paying for. Knowing you can always get a hold of the factoring company you are working with is a must-have for that service to be worth it!

How quickly you can access funding

Another really important aspect to be aware of throughout the application process is just how long it is going to take for you to gain access to the funding that you need. Make sure that you Keep in mind that the industry standard for the time between an application is approved and the funding is actually given out is 24 hours or one business day. If a truck factoring company is not going to be able to offer you access to the funding within that time frame, then you should probably consider working with someone who can.

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Remember, the process should work for you first, not the other way around. If a company is not able to guarantee fast financing, find another company that can.

Recourse vs. non-recourse financing

While most truck factoring companies are basically the same – as previously mentioned – there is one major difference that you should be aware of. That difference is between recourse and non-recourse financing.

Recourse factoring requires clients to repay the factoring company the amount of money they borrowed that is outstanding compared to the money they have been able to recover from unpaid invoices. Basically, if a client of yours refuses to or is unable to pay their invoice to the factoring company, your company will be on the hook to make up the difference.

Non-recourse factoring ensures that even if the factoring company you are working with is not able to complete an invoice, you will not be on the hook for the money owed.

While the decision based on the possible outcomes seems obvious, remember non-recourse factoring is often a bit more expensive and also comes with more extensive credit score checks for the clients whose invoices are being used as collateral.

Additional services and benefits

Remember when we mentioned that you should think of the fee that you are paying to get the money you need not just as a fee to simply get that cash in hand. Instead, you should consider it a payment for a specific service. In many cases, you will actually get services and benefits for the business that you are giving to a truck factoring company that will – in some sense – make the entire transaction pay for itself.

Some of the most common services and benefits that you can expect from truck factoring companies include:

  • 24/7 access to your personalized online account
  • Free credit checks for clients and customers
  • Fuel card programs for your drivers
  • Insurance assistance
  • Professional collection agents to make sure your invoices are filled

As you can see, there are a lot of concrete benefits that you can get on top of gaining access to the cash you need to continue thriving and growing. While the benefits and services should not be the primary thing to focus on, they can definitely help you make a decision if you are having a hard time deciding between two or more fairly similar factoring companies.

Flexibility

Finally, you should always consider the flexibility of a truck factoring company before you make your final decision. What this means is putting an emphasis on finding a company that is willing to work with you and your needs to make a contract work.

This means that they are able to augment the length and amount of a contract in order to fit your needs.

The two things to look out for is contract length and volume of invoices. Never agree to a length or volume that you are not comfortable with and will not help your company in the short and long term.

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