If you are in the trucking business, you might have heard of trucking factoring because it has become a prevalent method to avoid delays in payment on invoices. There is more to trucking factoring than you would expect. Here is everything you should know about trucking factoring.
What Is Trucking Factoring?
Trucking factoring, also known as freight factoring, represents a way to receive much faster payment for your services. Freight factoring takes the invoices of the loads you run, allowing you to get pain on them immediately. While you generally might have to wait 30, 60, or 90 days to be paid out, you will be paid now. This will keep your business in motion between invoice payouts, allowing an influx of working capital.
A factoring company will deal with your invoice payment processing and collections. In return for this service, you will have to give this company a small percentage of the invoice. You will make your delivery as usual, but instead of waiting for the payment, you will transfer or sell the invoice for the job to a factoring company or third-party company.
This will buy the invoice for slightly less money than the total owed, but they will make up by paying immediately. You can get your money on the same day, paying the factoring company an additional fee as low as $15.
With money in hand on the same day, you will go about your trucking business as usual, while the trucking factoring company will cash in your invoices and do all the paperwork and waiting.
Steps of the Trucking Factoring Process
The steps of the factoring process are as follows:
- You will start factoring with a factoring company.
- You notify your customers about this trucking factoring arrangement.
- You or your truckers transport the load for the customers, making the delivery and receiving a signed invoice.
- You or your drivers will send a copy of the invoice to the freight factoring company.
- The third-party company will verify the invoice to make sure the load was delivered as per the contract terms.
- They will advance you a percentage of the invoice’s value within a few days of receiving the invoice.
- You can receive up to 98% of your invoice’s original value.
- The freight factoring company will take over the paperwork, including the billing process, and collect from your customers.
When it comes to qualifying for factoring, the process is straightforward. You need to own a trucking business, including working as an owner-operator and providing services to customers with good credit. In fact, the freight factoring company can check the credit of all the companies you do business with, so you won’t waste time dealing with those who cannot pay their bills.
Is there a benefit of using factoring in the trucking industry? Yes! Most trucking businesses use factoring because they need cash flow to operate today rather than three months later. Moreover, you will save hours of time and money on personnel. The small percentage you give in exchange for the faster payment represents only a small price compared to other tucking business-related costs.
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