What Are The Best Factoring Companies For Trucking?

What is a factoring company in trucking?

A factoring company speeds up your access to the money your trucking company is owed. In return for a fee, they buy your invoices and give you most of the cash in just a few days or even hours. So instead of your business having to wait weeks or months before it receives your customers’ money, it gets it almost immediately, and cash flow problems become a thing of the past.

How do trucking factoring companies work?

Trucking factoring companies, also known as freight factoring companies, buy your accounts receivable. They then give you a percentage of the value of your issued invoices almost immediately. The actual percentage will vary depending on the factoring company and the number and value of your invoices but will usually be in the 80%-90% region.

It is then up to them to see that the invoice gets paid. When your customer pays the invoice, the trucking factoring company will pay you the residual amount of the invoice less a fee, known as the “discount rate.” This discount rate varies, but something between 1% and 6% of your total invoices for the month is the norm.

What does a freight factoring company do?

A trucking business does not hire a factoring company; it has to apply for factoring. If approved, and that will largely be down to the value of your invoices, they will issue a factoring agreement for your business. They then check on your customers to ascertain if they are creditworthy and which they will accept for factoring. It may be that they decide that not all your customers are worth taking on, and you will have to work with these customers yourself.

You then send the freight factoring company your invoices; usually, this is done electronically. They then pay you the agreed percentage of the invoice value. It is up to the factoring company to chase your customers for payment. Your business will receive the remainder of the invoice amount when the customer pays, minus the discount rate.

Do I need a factoring company for trucking?

While using a factoring company isn’t strictly necessary, if you run a freight company or are a driver/operator, it can make life easier, especially if you have a few clients that aren’t reliable about when they pay. Should your customers give you plenty of regular work and always pay on time, then a trucking factoring company may not be needed, but for many, this is not the case.

Not having to wait for payment and not having to chase your customers for money can make a real difference in running a freight business. In some ways, a factoring company takes care of some of that time-consuming back-office work, freeing you to concentrate on more important tasks like getting more customers and growing your company.

Freight factoring is not new, and many of the factoring companies have been around for years. Factoring can provide trucking businesses with a valuable resource that boosts cash flow and allows them to flourish. Trucking is a highly competitive business sector and faces the problem of ever-increasing costs. The benefits offered by a freight factoring company may be a good fit for your trucking company.

What are the advantages of working with a freight factoring company?

1. You don’t have to wait for your money, which smooths your cash flow. Cash flow can be a massive problem for trucking operators. Knowing that you can meet the financial demands every business faces without worrying whether you will be paid on time is a huge benefit.
2. It’s a fast and easy form of getting funding. Small business loans are much more difficult and often aren’t worth it if you simply need the boost of a paid invoice.
3. The application process for freight factoring is usually simple and fast, allowing you to get the cash quickly.
4. A credit score is often not a criterion in getting approval for factoring. What is important is the value of your invoices and that your customers are successful. This makes factoring for trucking businesses that have a less than perfect trading history an achievable form of funding.
5. Factoring is not a loan, so your business is not building up its debt, just realizing the cash that is tied up in its issued invoices.
6. You can work with them again and again. You can easily build a good relationship with a factoring company and use them regularly.

What are the disadvantages of working with a freight factoring company?

1. Depending upon your factoring company, it is likely your customers will be aware that you are using factoring. This can make you look like you are failing.
2. The way factoring companies collect payments varies – some may damage your client relationships, so be careful about which factoring company you choose to work with.
3. Sometimes the discount rates (AKA fees) can make factoring uneconomic. If your customers take prolonged periods to pay, the factoring company will charge more.

How much does trucking factoring cost?

The cost of trucking factoring varies with the provider. Generally, the discount rate is between 1% and 6% of the invoice value. Other factors the factoring company will take into account when setting fees are the number and size of your invoices, the creditworthiness of your clients, and, possibly, the credit history of your company. Here may be other fees, so read the agreement carefully.

How long does it take to set up with a factoring company?

Of all forms of funding, factoring is one of the fastest to set up. The application process is usually fast and straightforward, and many providers will give you a decision in hours rather than days. There may be a gap between sending your invoices and receiving the money to allow the factoring company to verify the invoices, but this will rarely be more than a week and often much less.

What is the difference between recourse and non-recourse factoring?

There are two forms of factoring you should be aware of: recourse and non-recourse factoring. Recourse factoring means you are liable should a customer fail to pay an invoice. Should that happen, you would have to buy the invoice back from the factoring company. To prevent this, only factor invoices to clients whom you trust.

With non-recourse factoring, it is the factoring company that takes the hit if a client defaults on an invoice, not your business. Naturally, we would all prefer to have non-recourse factoring, but there is no such thing as a free lunch. Non-recourse factoring is more expensive than non-recourse factoring.

How do I get started factoring?

First, you need to research which of the factoring companies for trucking best suits your needs and offers what you want at the right cost.

Here are four of the top factoring companies you might want to consider:

1. Apex Capital – Apex are specialists in factoring for trucking businesses and will consider one-person owner-operators as well as much bigger businesses. They offer both recourse and non-recourse factoring, and the fees for recourse factoring start at 2%.
2. Riviera Finance – Another long-time factoring company having started in 1969. There is an average of four to seven days between application and receiving funds, and if you like, you can apply at one of their 30 bricks and mortar offices across North America as well as online.
3. TBS Factoring – TBS is another freight factoring company that has both recourse and non-recourse options. Qualification is easy, and they will give you 100% of the invoice value, with rates starting at 1.25% per week.
4. Bluevine – One of the best options for freight factoring, Bluevine is not a traditional factoring company. They charge 1% for every week the invoice remains unpaid though rates can be lowered with a sufficient volume of invoices. They will give you between 85% and 90% of the invoice total upfront.

Trucking is big business. It employs millions of drivers and generates hundreds of billions of dollars in annual revenue. But the fact that customers expect and demand 30, 60 or even 90 days to pay means that cash flow will often be a bugbear. 

Factoring for trucking companies is a reliable way to get cash, which you have already earned, into your bank account quickly. It can be the difference between struggling and flying.

Like all forms of finance, you need to consider your options carefully to avoid making a bad choice of a factoring company. PrimeRates can help you make a decision quickly and easily. Take a few moments to apply; we’ll send you a list from which you can select the most promising deal, and you can have the cash in your bank account within a day or two. Click here to get started.