Whether it’s called truck factoring, load factoring or freight factoring, there is a lot of terminology about factoring, and things can get complex. This article will help answer the question, what is freight factoring, and why do so many fleets use it?
How Freight Factoring Works
No matter what name it goes by, freight factoring is a financial service that helps trucking companies improve cash flow by selling their unpaid invoices to a factoring company. This gives truckers immediate access to funds rather than waiting 30-90 days for their customers to pay them.
Here’s how it works in a couple simple steps:
- A trucking company delivers a load and creates an invoice for that load.
- Instead of waiting for payment, the trucking company sells the invoice to their factoring company (uploading it through an online portal).
- The factoring company advances a percentage of the invoice to you (usually 80-95%) within 24 hours.
- Once the shipper pays the invoice, the factoring company releases the remaining balance, minus a small fee.
- The trucking company gets cash flow quickly, allowing them to cover fuel, payroll and other expenses without delays.
Types of Factoring
There are two main types of freight factoring:
- Recourse Factoring: In the event of an unpaid invoice, the trucking company is responsible. If the customer doesn’t pay, the trucking company must buy back the invoice or replace it with another.
- Non-Recourse Factoring: The factoring company assumes the risk of non-payment, protecting the trucking company from debt. This option usually comes with higher fees along with very specific stipulations.
Unique Considerations for Factoring with Freight
Factoring is not just for freight: other industries like staffing and healthcare use factoring to keep cash flowing. Freight factoring, though, comes with a unique set of considerations:
- Timing is everything: Freight invoices typically have 30-90 day payment terms, but truckers need cash right away to cover fuel, repairs and other expenses.
- Regulations and compliance: The freight industry is heavily regulated, and disputes over damaged goods, missing paperwork and compliance issues can delay payments.
- Additional services: Many factoring companies offer fuel cards with discounts and other perks designed to help truckers save money and operate efficiently.
Benefits of Factoring for Trucking Companies
Why would trucking companies choose factoring when they could just wait longer to get paid?
Plenty of reasons.
Freight factoring provides trucking companies with fast access to cash, reducing financial stress and helping ensure steady operations. It also allows fleets to take on more loads and expand their business. Plus, they’ll avoid the hassle of chasing down payments to collect on invoices.
RTS Financial: A Powerful Tool for Growth
Freight factoring is a powerful tool that helps trucking companies like yours maintain cash flow and keep operations running smoothly. RTS Financial has over 30 years of factoring experience, offering highly-competitive advance rates and scalable funding that grows with your company. By understanding how factoring works and choosing the right factoring company for your needs, you can focus on what you do best — keeping freight moving and arriving home safely.
For more information on freight factoring, or to sign up for services, fill out the contact form and a representative will reach out shortly!