The Unexpected Benefits of Freight Factoring

Freight factoring is when you outsource the collection of your unpaid invoices to a third-party company. They’ll pay you immediately and then collect directly from your brokers and shippers. The most frequently cited benefit of freight factoring is getting paid faster. However, there are many other often-overlooked advantages of freight factoring. By alleviating your administrative burden and promoting consistent cash flow, freight factoring can contribute to the long-term growth and stability of your trucking business.

9 Unexpected Freight Factoring Benefits

Freight factoring can help you build your financial stability and concentrate on your core business offerings by streamlining your collections process. As you dig into how freight factoring works, you'll discover even more benefits, including the following:

1. Fast Approval

Applying for a traditional business loan is a time and labor-intensive process that can take months. You’ll need to provide information about your credit history, business finances, collateral, and more before a lender will approve a loan. If your credit history is less than stellar or you’re just starting out, you’ll have a hard time getting approved.

With a freight factoring company, the approval process is much shorter. The company will verify the creditworthiness of the clients whose invoices they’ll be collecting. Once they’ve established that, they’ll issue you an advance on the invoices and purchase your invoices.

2. Less Risk

When you start working with a freight factoring company, it will conduct credit checks on your brokers and shippers. This helps protect you from doing business with companies that have a high risk of not paying invoices. An unpaid invoice can significantly cut into your profits. An invoice factoring company can help you vet customers before you work with them.

3. Better Cash Flow

Many small businesses fail because of problems with cash flow. If you’re not getting paid until weeks or months after you finish a job, you have to absorb the cost of keeping your business afloat while you wait. Without prompt payment, you can have a hard time paying your bills, buying fuel, and maintaining your trucks.

In fact, Dunn & Bradstreet reports that up to 25% of companies that rely on freight carriers don’t pay their bills on time. Without a freight factoring partnership, you may have to wait up to 90 days for payment.

In contrast, freight factoring companies typically pay out within 24 hours, giving you almost immediate access to the money you need to maintain and grow your business.

4. Contract Flexibility

You don’t have to sign a long-term contract when you work with a freight factoring company. Companies have different options when it comes to contracts. Some do require a set contract, but others don't. Some invoice factoring companies require you to submit all of your invoices through them, while some allow you to pick and choose which invoices they collect.

You can also choose your rates and terms. Freight factoring companies typically charge between 2% and 10% for their services. The rate varies based on factors such as the services offered. Companies typically offer either recourse or nonrecourse factoring. With recourse factoring, you’re responsible for paying for uncollected invoices. With nonrecourse factoring, the liability shifts to the freight factoring company.

Rates are typically lower for recourse factoring since the risk for the factoring company is less. It’s also worth noting that even non-recourse factoring may not remove all of your liability. It often only protects you in the event that the broker or shipper goes bankrupt. If a client simply decides not to pay the bill, you may still be on the hook.

5. Back Office Support

Another significant benefit of partnering with a freight factoring company is that it'll handle much of your back-office and administrative tasks. You may be able to reduce costs by hiring fewer employees to chase down invoices. If you’re an independent owner/operator or a small business with a limited staff, factoring for back-office support can take the burden off of you. You can spend less time making calls, sending invoices to multiple clients, following up on late invoices, and doing accounting work.

6. Time To Grow Your Business

When you don’t have to worry about covering a shortfall, you can focus on accepting more work, hiring new drivers, buying more trucks, or otherwise growing your trucking business. Quickly turning over your invoices will free up your capital so you’ll have enough to cover the costs associated with delivering more loads.

A reliable cash flow will help you forecast your profits, income, and expenses more effectively. This allows you to make informed decisions about business strategy. If you decide to apply for a loan in the future, it also shows you have a good cash flow.

7. Control Over Your Business

Trucking factoring isn’t a loan, so it doesn’t count against your debt/income ratio. It can help you avoid taking on debt that can cut into your profits. You can also avoid giving up equity in your business. Factoring gives you access to operating capital without having to make compromises such as selling equity or taking out loans.

8. Partnership Discounts

Many freight factoring companies offer their clients additional perks, such as fuel cards and discounts. Fuel is one of the largest and most volatile expenses of operating a trucking company. Fuel discounts with freight factoring can save you a significant amount of money on your fuel expenses.

9. Technology Integration

Freight factoring platforms can integrate with your existing business tools to facilitate streamlining trucking operations. They can work with transportation management systems (TMS) and electronic logging devices (ELDs) to automate data collection, trip logs, and proof of delivery. After you complete a load in your TMS, the system can automatically trigger an invoice and send it to the factoring company. This further reduces the time it takes to deliver invoices and get paid.

Predictive analytics can offer insight that can help you establish a continuous improvement loop. For example, these systems can forecast cash flow, identify shippers who are slow to pay, and suggest optimal routes for fuel savings.

Why Trucking Companies Choose Freight Factoring

Although you may initially be drawn to freight factoring because you’ll get paid faster, they offer a host of other benefits as well. Reliable access to your money as soon as you have an invoice overflows into how you operate your business and can help you make strategic decisions to grow your company, rather than wondering how you’ll cover fuel expenses for the next load.

Breaking from spending time chasing payment and sending follow-up notifications when invoices aren’t paid promptly allows you more time to focus on your core business function: delivering goods quickly and efficiently.

Because freight factoring allows you to avoid taking on debt to cover operating expenses, it gives you more freedom to operate your company. You can continue to operate your business without debt, or you can increase your odds of securing a business loan. Improved cash flow allows you to demonstrate fiscal responsibility that many lenders look for when issuing loans.

Finally, freight factoring platforms can easily integrate with your existing business tools to simplify your workflows and give you actionable, data-driven insights into your daily operations.

Next Steps To Grow Your Company

Running your own company comes with both freedom and responsibility. Whether to use freight factoring or not is only one of hundreds of decisions you need to make about how to grow and protect your company. One decision that is easy to make is protecting your trucks with America’s Trucking Warranty. When a big truck breaks down, the repairs aren’t cheap. ATW plans protect you from unexpected expenses by covering all mechanical components, including engines, transmissions, exhaust after treatment, and more.

You can have repairs performed by any licensed repair facility in the USA or Canada, so you don’t have to worry about towing your truck to a specific facility that may be hundreds of miles away. We’ll help you get your truck repaired and back on the road as soon as possible. Reach out today for a free quote.