How to Choose a Factoring Company
First, let’s define what factoring is.
What Is Freight Invoice Factoring? Factoring could provide an immediate solution to your trucking company’s cash flow problem. Factoring is a type of financing in which a trucking company / owner-operator sells its freight invoices to a factoring company. Within hours the factor will advance funds (usually 90% – 100% of invoice amount) via ACH directly into your checking account. If a reserve was held, the factor will rebate the remaining percentage, less any fees, after the invoice has been paid. Factoring improves cash flow by allowing you to receive cash quickly (within 24 hours). This is much better than waiting 30 to 60 days for a customer to pay.
So, how do I choose which factoring company?
Take your time. Do your research and then choose carefully. Pay close attention to the details as each factoring company’s terms and conditions can vary greatly.
Things to consider.
- Do you need a trucking industry factoring company?
Yes! Trucking is unique. Things will go smoother if you’re working with a factor (like Trucking Partners) that understands the “ins and outs” of the trucking industry.
- What is the Length of Agreement?
Large factoring companies often require a one year contract! And be careful . . . the agreement could have an autorenewal term too. Find a factoring company that does not tie you down. Trucking Partners aims to keep you as a client with its outstanding service rather than a long-term contract.
- What are the Terms and Fee Structure?
Factoring companies that claim to be the cheapest might not be the best for your business. These companies often nickel and dime you through additional hidden fees and may offer terrible service, as well. Some companies advertise very low fees but plan to make up for it by charging hidden fees. What might seem to be the cheapest option could turn out to be the more expensive one.
- Does the Factoring Company offer Recourse and Non-Recourse Programs?
Recourse factoring requires the owner/operator to assume the risk of a customer not paying the factored invoice. In non-recourse factoring, the factor assumes the risk of nonpayment of a factored invoice (barring certain circumstances). Less than 20% of factors offer non-recourse funding.
Think about choosing a factoring company that is flexible and will allow you to decide which particular invoices you want to factor. Avoid factors that require you to factor all invoices.
One critical aspect when considering factoring companies is the amount of time they have been in business. Experience and time spent in a specific industry are very important. The more the factor understands your industry, the better they’re able to structure the best possible deal. Trucking requires different services than other industries. For example, Trucking Partners offers additional benefits to truckers such as fuel cards and fuel advances.
- Customer Service
The factoring company you choose should be easy to communicate with and should follow through on commitments. In other words, they should do what they say they will do. Your factoring company’s staff should also be friendly and courteous. After all, they will be speaking with your customers quite often.
Trucking Partners has served small to medium sized motor carriers for several years. We enjoy knowing our customers by name and helping them to be successful. We are a family-owned business, so we understand the difficulties with getting started and all of the upfront expenses. We hope you will allow Trucking Partners the privilege to become a part of your company’s cash flow solution.
Trucking Partners . . . “Factoring Made Simple”.