As someone who runs a trucking business, you’ve likely come across something called factoring.
Sometimes it’s called receivables finance or in transport freight invoice factoring. Sometimes people call it debtor finance but it’s all basically the same thing. It is basically factoring of freight notes or load sheets. Usually, you have to create one of your own invoices to match the freight note but that is just good business practice.
Perhaps you’ve had a few calls asking if you are interested in signing up for a factoring service. You probably might have responded with a no because you’re really not sure what freight invoice factoring is.
Well, today is your lucky day because you’re going to learn what factoring is in the easiest way possible.
Freight invoice factoring is basically a transaction wherein your trucking business sells its invoices. You sell them to a factoring company. The factoring company is nothing but a financial institution that plays the role of a “factor” in such transactions. The factor’s primary task is to verify or confirm the invoice with the debtor, your customer, Then they advance funds to you; the Client. That’s YOU, the trucker. Also, the factor will help collect the payment for those invoices from customers on behalf of the trucking business or freight service.
The best thing about using reliable factoring business for your freight invoice factoring is that they are not a bank. They usually are far more responsive to your needs because they are not a bank.
The primary purpose of freight invoice factoring is to help your trucking business get the cash it is owed. Instead of having to wait for 30, 60 or even 90 days, you can get most of it now. Customers rarely pay right away. They have their own processes that can cause delays.
What happens when I factor the Freight Invoice
When you sell your freight invoice, the factor provides you with a cash advance which is usually an agreed upon percentage of the total invoice value. The money is transferred on the day the invoice is confirmed by your customer that it is correct. The remaining balance is provided after the factor collects the money from your customers. Of course, they will deduct a certain amount as fees but it is well worth the small fees in exchange for getting almost immediate access to the funds.
The rate of the cash advance varies according to a range of factors, including the customer’s credit history and industry.
Freight invoice factoring is simply the term given to the type of invoice factoring specializing in the freight industry.