Freight factoring is a financial tool that helps small carriers get paid faster after delivery.
Carriers usually take over a month to get paid for their work. This lag in pay creates cash flow problems for small carriers, making it harder for them to stay in business.
This post will take a closer look at how freight factoring works, how much it costs, and what to look for in a factoring partner.
What is freight factoring?
Freight factoring is a process where carriers sell their invoices to a factoring company at a discounted rate. The factoring company then advances the carrier a portion of the invoice value upfront, and the carrier receives the remaining balance once the customer pays the invoice.
This process lets carriers get paid for their services quickly, rather than waiting weeks or months for customers to pay.
How does freight factoring work?
Freight factoring is a simple process.
First, the carrier delivers the goods and provides the customer with an invoice.
The carrier then contacts a factoring company and sells the invoice to them. The factoring company advances the carrier a portion of the invoice value upfront. The carrier then receives the remaining balance once the customer pays the invoice.
How much do freight factoring companies charge?
The cost of factoring varies depending on the factoring company and the terms of the agreement.
Some factoring companies charge a flat rate, while others charge a percentage of the invoice value. On average, freight factoring companies commonly charge a fee between 1-5% of the invoice value.
What to look for in a freight factoring company
Be sure to do some research before partnering with a factoring company.
Consider the company’s reputation. Look for a company with a good track record of providing reliable and timely services.
Another factor to consider is the company’s financial stability. Working with a company that is financially stable and can pay for the invoices you transfer to them is essential.
And, of course, know how much the factoring company will charge before you do business with them.
How can I start factoring?
An intelligent TMS features numerous integrations, including factoring integrations, that make life easier.
LoadOps, the intelligent TMS, helps your trucking company integrate with leading factoring companies like:
- Apex Capital
- OTR Capital
- Triumph Business Capital
LoadOps even has integrations that let you factor straight from your phone.
Learn more about LoadOps to see how it helps with factoring and other daily operations.
By understanding how freight factoring works and what to look for in a freight trucking business, carriers can make informed decisions that will help them grow their business and improve their bottom line.