Truck Factoring: How It Works and Why You Need It

In an ideal world, truck factoring wouldn’t be necessary. Trucking companies, such as yourself, would get orders, deliver loads, invoice clients and within a short amount of time receive payment. After the business owner has received a payment, he or she will pay their expenses such as truck maintenance, driver payments, fuel and suppliers.

Unfortunately, this isn’t the reality that many small to medium sized trucking businesses experience in North America. Some clients take a long time to pay their invoices – these processes and procedures have been set in stone for decades and there’s no way they can fast-track your payment, so you’re left waiting more than a month for your payment to arrive. To make matters worse, you’ve got drivers, staff and suppliers who also need to be paid for you to keep your doors open (and your trucks on the road).

This is where trucking factoring can come in very handy. In this case, you would simply follow these steps:

1. A customer books a load and sends through all the details regarding the load, delivery date and rates.

2. You make the necessary arrangements and deliver the load.

3. You send the invoice to the factoring company instead of the client.

4. The truck factoring company pays a percentage of the invoice and handles the invoicing with the client from there.

5. Once the client has paid in full, the rest of the amount (minus the factoring service fee) is paid to you.

As you can see, this simple and straightforward process allows you to get your invoices paid almost immediately and it ensures you don’t have to worry about all the administration involved in following up with clients. It also means you don’t have to wait for weeks and months on end in order to receive your money.

Truck factoring isn’t necessarily ideal for each and every trucking business, but if you need to ensure your company always has a positive cash flow, then it is something you should consider. The factoring service fee usually varies from company to company and it can be anything from 1.5% to 6% of the invoice. While this could add up to a hefty sum of money, you also have to consider the time you will save due to the fact you’re no longer on the phone, following up with clients about unpaid invoices (or standing in the queue at the bank in order to ask a loan so you can make payroll and drivers payments).

Questions to Ask a Freight Factoring Company

Thinking of partnering with a freight factoring company? A positive cash flow can have a huge impact on your business. Not only will you be able to take on more clients and larger deals, but you will also be able to ensure that driver payments, payroll, fuel and all your other expenses are always paid on time.

If you’ve already decided you are going to partner with one of the freight factoring companies in your area, then you need to start researching the various companies to determine who will provide the best service to you. Here are a few questions to ask to make sure you get a value for money service:

What happens if my clients don’t pay?

This is an important question because it can put you in a difficult position if you have to pay for outstanding bills from clients. Find out if the factoring company handles debt disputes and what their normal procedures are when trying to claim back money from clients.

Do I get to choose which invoices I factor?

In some cases, you might have weekly loads which you bill and your clients pay each week. In this case, you might not necessarily need a factoring company to factor the invoices for you. You might only need factoring services for larger loads which only get paid after 30, 60 or 90 days. Find out if the factoring company will allow you to decide which invoices you want to factor or if you have to hand over your entire client book.

What kind of extra services do you offer (and what do I have to pay for?)

Factoring and bank loans are very different in a number of ways, but one of the most prominent differences is the fact that banks research businesses to determine whether they are creditworthy, while a factoring company will research your clients to determine whether they are creditworthy or not. Freight factoring companies will either do a credit check on your clients to ensure they are capable of paying the invoices, or they will give you a list of pre-approved clients which meet their credit requirements. Find out what process they use to determine whether clients are creditworthy and whether you will have to pay extra for this vetting process.

What percentage of the invoice will you advance?

Many times, a freight factoring company will advance a certain percentage of the invoice (such as 80%, 90% or even 100%) and the rest of the amount only gets paid once the client has paid the outstanding invoice in full and their service fee has been deducted. Make sure you know what percentage gets paid to you in advance.