How Freight Factoring Works & How It Can Help Your Trucking Business

In the trucking business, customers who pay 30 to 60 days after delivery is normal. This is why most trucking companies invite as many investors as they can to keep their company liquid.

Unfortunately, those companies with lesser cash flow may end up having problems sustaining the business. Despite their efforts, they have a hard time growing the company. If you’re in this situation, then freight factoring might be the solution that you’re looking for.

What Exactly Is Freight Factoring?

Also known as trucking factoring, factoring of freight allows trucking companies and owner-operators to receive immediate cash for their unpaid invoices. Trucking factoring is a common practice for trucking companies to cover the gaps in their cash flow. Instead of waiting for their freight brokers or shippers’ payment, they can now be paid after they send the invoice.

Most factoring companies pay 80 to 90% of your outstanding invoices’ value upfront. The remaining 10 to 20% is paid as soon as your customer pays. They will only collect a meager amount for their processing fee. This is a way better option than letting your money sleep for two to three months.

Trucking factoring is advantageous for small-trucking businesses that are looking for immediate payment in order to accept additional work. It’s also beneficial for larger trucking companies that are filling in the gaps in their cash flow. If you do not have a high credit score, this is also a great way to be financed. Instead of your credit score, you can qualify for trucking factoring based on your customers’ creditworthiness. OTR Solutions provide factoring services for the trucking industry, they help to speed up freight invoice payments, improve cash flow and eliminate payment delays. These services can help to reduce financial strain, without having to worry about payment delays, which enables your business to focus on growth as it frees up room for capital for expansion.

How Does Freight Factoring Work?

With trucking factoring, a trucking company can sell to a preferred factoring company its 90-day old unpaid invoices. To understand the process better, here are the five simple steps.

1. The process starts with the issuance of an invoice to your customers for all the work done. This outstanding invoice is the basis for the factoring agreement you enter with the third-party.
2. The next step would be applicable for companies with a large volume of unpaid invoices sold. This process is called contract factoring, and it requires the trucking company to sell and assign all their invoices to the factoring company. The latter will collect the payment on the former’s behalf. Spot factoring, on the other hand, is for low volume factoring. This works like a credit line that allows you to choose the invoices that you want to factor or sell.
3. After sending your invoice to the factoring company, the latter will pay you a percentage of your invoices’ total value. The rest of the payment will be paid after your customer pays.
4. Your customers will pay the invoice directly to the factoring company. These payments are usually sent through a lockbox that bears your name. The factoring companies control the deposit account and lock box, so if you opt for contract factoring, the collection of payments will be shifted entirely to the chosen factoring company.
5. After your customer pays, the factoring company takes out their fees and forwards the payment balance to you.

How Can Freight Factoring Help Your Business?

 Here are common advantages of trucking factoring:

• Quick funding: You can get your funds from your factored invoices within the day or the next 24 hours. Instead of waiting for your customers to pay, you can receive quick cash to get you more work.
• Easy Qualifying Process: Since qualifying is based on your customers’ creditworthiness, you don’t have to worry about your own credit rating. You also don’t have to worry about business documents and other unnecessary qualifying requirements.
• Helps you grow your trucking business: Since you’re paid faster, you can also finance more trucking jobs, and more trucking jobs and better cash flow can significantly improve your business operations.

With trucking factoring, cash flow and unpaid invoices will never be a problem. For as long as you have creditworthy clients, approval of your factoring application will also be seamless. Get in touch with a reputable factoring company and be prepared to grow your operation.