Running a trucking company has its challenges particularly when it comes to managing the business’s financial affairs. Cash flow and securing business loans to grow business and clear other expenses is still a big challenge these companies come across.
Another common challenge facing truckers is having to wait between 60 to 90 days for an invoice to mature before the client can make payment.
In the United States, trucking companies with utmost 28 trucks are considered small businesses, which are the business that suffer mostly due to limited cash flow. This holds up a business capacity to haul a freight and even smooth running of business becomes a problem.
However, with trucking factoring service, businesses — both small and medium, are now able to overcome these challenges and help bridge invoice gaps with upfront payments to up to 90% of the original invoice.
Factors to Consider When Choosing Freight Factoring Services.
1. How long does the funding process take?
The idea behind trucking factoring service is that payment is made when the client receive and confirms your invoices. Some factoring companies will offer accelerated funding — either instant funding, same-day funding or next-day funding, while others can take up to 3 days to process payment.
The funding process and duration is a key aspect of the contract that you need to keep in mind. If you’re always tight on cash flow, then it would be wise to choose at factoring companies with accelerated funding to ensure your business continuity.
2. Customers Service Available
Invoice funding companies have varying levels of customer services. Ideally, if you’ve an issue, mostly financial, you want to be able to speak with a representative right away. Whether you need to access funds quickly or there is a problem with your account, having a contact person can be helpful.
If a factor has nearby offices that’s even better as you can easily walk in and get to interact with them on a more personal level instead of virtual communication. You don’t want to work with a company that only communicate through emails. So it’s important to conduct your homework before you can commit to anything long-term.
3. Does the factoring company offer recourse or non-recourse funding?
When choosing a trucking factoring service you need to understand there are two types of funding — recourse and non-recourse.
In recourse funding, factors will recover any unpaid invoices from you and not your clients while the non-recourse factors offer credit protection against unpaid invoices.
This is an important question you need to ask when engaging
with factoring companies. The contract also states what will happen should the client’s invoice is overdue or finally become unpaid. A credit protection states that you can still receive your funds even with unpaid invoices. However, the risk is shifted to the factor and that’s why non-recourse factoring will cost more.
For small trucking businesses, unpaid invoices is a real threat and so you should put strategies in place to protect yourself against such.
4. Advance Funding and Reserves
Most trucking factoring service will offer advance invoice payment for up to 85% or more, and the balance is paid when the client’s honors the invoice. Of course, you’ll be charged a factoring fee and you can expect this to be deducted from the remaining balance.
Factoring fees are either deducted on the gross or the net amount factored and here are some of the things that determine the fee. Ensure you understand the contract and the fees you can expect to be charged when speaking with your potential factor.
Lastly, you need to understand the contact period a factor offers because it’s legally binding and should you choose to terminate it, there are consequences. Some factors may demand you to enter into a long-term contract that ranges from three months to 3 years, while others will have flexible contract duration that allows you to terminate at any particular time. These are some of the things to consider when choosing a freight invoice factoring company.