Do you know how freight factoring for trucking works? It’s a process where a company pays you a portion or all of the money a broker or shipper owes you, but you don’t have to wait weeks for payment. You don’t have to bother sending out invoices or keeping track of companies that haven’t paid on time.
With freight factoring, you send the bill of lading to the freight factoring specialist. They pay all or a portion of the money that you’re owed. You do pay a small fee, but you have the money you need within 24 hours or sometimes less.
Does freight factoring sound like the perfect fit for your growing trucking business? Is it an ideal way to keep money flowing into your established company? Either way, you want to choose the ideal freight factoring firm. What’s perfect for one company may not be right for you. Make sure you’re finding the right company by knowing what to ask.
A Quick Checklist of Questions to Ask
You shouldn’t partner with the first freight factoring service you see. That might be the right company for your needs, but there’s also the chance it’s not a good fit. Before you dive in, you should learn what to look for in a freight factoring service. This checklist of the questions to ask and criteria to look for helps you find the best freight factoring service for your needs.
What Is the Application Process Like?
What is needed to apply for invoice factoring? How much information are you going to supply? Ideally, you want a quick and easy form that doesn’t eat into your daily schedule. Look for a form that is done online without needing to fax or mail anything in. Most online applications won’t ask for much more than your company’s name, phone number, email, and Motor Carrier (MC) number.
Do They Offer Recourse or Non-Recourse Factoring?
Ask if the factoring is recourse, non-recourse, or a mix of both. The fees you pay will be dependent on this answer. Non-recourse factoring is ideal. It means that if the broker or shipper never pays the invoice, the invoice factoring company cannot come after you for repayment. Non-recourse means no risk, but you’ll pay higher fees.
Recourse factoring is riskier for you; therefore, the fees you pay are cheaper. If the broker or shipper doesn’t pay the invoice factoring company, you have to repay the money they fronted you.
Some companies offer a mix where the company has insurance that covers unpaid invoices in some situations. But if the broker or shipper gives a reason for non-payment, such as you damaged the shipment during delivery, you’ll have to pay the freight factoring company back.
What Are the Freight Factoring Rates? What About Hidden Fees?
Find out what the freight factoring rates are and if there are hidden fees. Companies may charge factoring fees as little as 0.50%, while others may charge 5%. The lowest rate isn’t always the best. If there are hidden fees tucked into the agreement, you may end up losing much more of your money to those fees. Examples of these fees include:
- ACH/banking fees
- Administration fees
- Aged invoice fees
- Early termination fees
- Invoice uploading fees
- Origination fees
- Per-transaction fees
- Same-day payment fees
Are There Minimums?
Ask if the company requires a minimum. Some invoice factoring firms require you to factor a specific number of invoices each month. If you fall short of that number, there may be penalties.
Can You Pick and Choose?
Are you able to pick and choose the invoices you factor? You might work with a broker or shipper who pays on time. You don’t want to factor their invoices. But, you’re taking loads through a load-finding app, and you don’t have a history with that broker or shipper. You want to factor those invoices.
If a freight factoring company requires you to factor all invoices with them, it may not be to your advantage. Your broker or shipper may not want to pay you through another party. You may not want to lose the factoring fee.
Are You Locked In a Long Contract?
Find out if you can cancel the contract at any time or if you’re locked in for several months, a year, or longer. If you’re locked into a contract, carefully read that contract. Make sure you’re okay with the terms. If not, move on to the next company on your list.
How Do You Get Paid?
When you deliver a load, you send an invoice to the broker or shipper and wait for the money to be electronically deposited or to have a check mailed to you.
With freight factoring, you might have other options. Electronic deposits are one of them, but you may have a chance to get paid directly to a debit card. You’ll get money loaded to the same card you use to pay for expenses like utility bills, fuel-ups, or truck repairs.
How Long Does It Take to Get Your Money?
Once you’ve picked up a load, can you get paid before you drop it off? How much can you get? Do you have to wait until your driver delivers it? At that point, are you entitled to the full 100% of the amount due, minus fees of course, or are you only giving a percentage of it?
Some companies will only pay 90% or 95% until the invoice is paid. If that’s okay with you, then it’s not a problem. If you’re expecting the full payment, you may not like the terms.
Do They Offer Other Services?
Freight factoring companies should offer other services. The more they help you do each day, the more use you’ll get out of your enrollment. Look for companies that have add-on services like these.
- Free business credit checks
- Fuel card discounts
- Invoice generation that is compatible with popular accounting software
- Lines of credit options
- Load finding and load tracking software for mobile devices
- Same-day payments/Click and Pay API
- Visa cards
When you have one factoring app handling several tasks, it saves you time. You’re not signing into one site, logging out, and moving to the next. It’s convenient, and you get so much more done.
What If You Have Questions?
How do you reach the invoice factoring department if you have questions? Is there live-chat support? What about email or phone? If you’re on the road a lot, an app that you can use from your smartphone is the most convenient. Make sure there’s an app that you can use to submit a bill of lading for payment, contact the company with questions, and even find new loads for your return trip.
What Is the Company’s History?
The best freight factoring company is one with insight into the trucking industry. The more the company knows, the more helpful it is to you as you partner with their service. Check their memberships. You want firms that are active in the International Factoring Association and organizations like American Factors Association, BiTA, and Secured Finance Network.
Read the company’s code of ethics. You want to make sure they follow laws and regulations, and that they require the same of all of their employees. You also want one that has financial experts who understand how to maximize profits.
Saint John Capital Works With Trucking Firms to Ensure It’s the Right Fit
Whether you have one truck or dozens of them, Saint John Capital is happy to help you grow your trucking business. We offer the best possible factoring rates and provide 100% factoring advances.
Since we opened our doors in 1997, we’ve paid thousands of companies quickly and have provided helpful tools like free credit checks, a mobile app for finding loads and uploading bills of lading, and lines of credit that help you plan for the unexpected. Create an account today to explore the many ways we help you get paid quickly and grow your company.
