How to Get the Most Out of a Freight Factoring Service
If you have not considered invoice factoring for your freight, trucking or transportation business, then you are definitely missing out on an opportunity to boost your operational efficiency. Owner operators that use this financing tool are able to pick up new loads faster and reduce the receivables gap that creates challenging situations due to slow paying customers.
What is freight factoring?
Invoice factoring is a very simple transaction that has been around for decades and is sometimes referred to as accounts receivable financing. It involves the sale of a freight bill by a carrier to a factoring company at a discounted rate. The factoring company then later collects the debt from the shipper or broker. In this transaction, the carrier receives payment quicker and is able to keep the wheels of his or her carrier business turning. The factoring company on the other hand takes a small percentage of the freight bill as a fee.
Who Benefits from These Financial Tools?
Freight factoring is very popular among carriers. In 2016, it made up 36.4% of all factored invoices. Its benefits are very real and they include –
- Fast and reliable operating cash flow
Cash flow is always an issue in any shipper/broker-carrier arrangement. Shippers and brokers want to withhold payments for as long as possible while carriers want to be paid quickly.Factoring offers carriers a way to fund their businesses and maintain a consistent cash flow without increasing their debt.This is especially beneficial to new carriers who are yet to recover their startup expenses and are unable to obtain a bank line of credit.
- Full service provision
Over the last couple of years, freight-factoringcompanies have grown to become full-service providers. They have become a one-stop-shop for numerous business tools and services. These include fuel purchasing discounts, breakdown services, truck insurance, equipment financing, repair and maintenance discounts to mention but a few. Some companies are even utilizing technologies that allow truckers to handle invoice uploads from their mobile phones while on the road. These tools and services help carrier companies and even owner operators run their businesses more smoothly and avoid cash gaps from net invoicing terms.
- Advantages of Technology
Just like all other industries, factoring has been greatly transformed by recent advancements in technology. The industry has seen technology-driven innovations galore, which have dramatically improved operations from customer service to payment processing. These changes have made factoring more accessible and effective. Increasing the ease of application, technology to upload invoices and even factoring apps are all recent ways technology is making factoring more accessible.
- Improved factoring offers
To stay ahead of their competition, factoring companieshave been forced to constantly improve their factoring offers. High advance rates coupled with rock bottom factoring fees have made freight factoring moreaffordable for carriers. Additionally, non-recourse and spot factoring allow the sellers of these invoices to lower their risk and get funding from single invoices in a pinch.
Tips for Finding The Right Factoring Company
The choice of a factoring service doesn’t have to be complicated. You should begin with research. This includes determining the factoring service your business needs and service provider that can deliver. A factoring directory should help you with this.You can use it to search factoring companies by industry and location, review their backgrounds and specialties, find out what finance services they offer and check their legitimacy.
The first thing to look intois the company’s policy on factoring your invoices. You do not need a factoring service for quick-paying clients. Pick a company that can provide its services on a per-load basis to avoid the unnecessary factoring fees when dealing with quick-paying clients. You should also consider the minimum term commitment they are offering since you may only need factoring for a short while and terminating the commitment may attract penalties.
If you find their factoring policy agreeable, find out what additional services the factoring company provides. This can be anything from free credit checks to fuel cards. The more perks the better.
Finally, find out if the company is offering non-recourse factoring. In this type of factoring, the company assumes the risk of non-collection. It shifts the headache of collection to the factoring company giving you the freedom to focus on growing your business.
Factoring, a practice that was traditionally considered a lifeline for companies with poor cash flow, has today become the norm of operations for trucking companies of all sizes. You can take your business to the next level if you properly utilized your freight factoring service.