Let us review the basics of freight factoring, some of the common questions people ask, and some important things to look for when you’re shopping for the best factoring company. Running a successful trucking company can be complicated. But deciding whether freight factoring is right for you, and which is the best factoring company for your needs, shouldn’t be.
A freight factoring company purchases account receivables (invoices) from a trucking company for a fee. Factoring allows companies to get paid faster and is especially helpful for managing cash flow when a carrier is working with brokers or shippers that have payment terms of 30 days or more.
Here is how freight factoring works:
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Freight factoring for the trucking industry has been around for several decades. But still, there is a common misconception that factoring is a last resort for failing companies. Not even close. Hundreds of new trucking companies are formed monthly. They are granted motor carrier operating authority and off they go. It’s especially difficult for new and small trucking businesses to qualify for traditional financing from a bank. That’s why so many turn to freight factoring to manage cash flow and avoid accumulating heavy debt.
More established trucking companies use factoring to grow their businesses. They rely on a steady stream of debt-free cash from factoring their account receivables as opposed to dealing with the debt brought on by a bank loan or increasing a line of credit. Trucking companies also choose a freight factoring company to streamline cash flow, check credit on their customers, and outsource collections.
Factoring companies provide trucking companies with fast and reliable cash flow through the purchase of freight bills. We know that trucking companies have many upfront and scheduled expenses – fuel, tires, truck maintenance, insurance premiums, truck payments, and payroll. That’s why positive cash flow is crucial to the success of your trucking company.
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Cash flow is incoming and outgoing cash that keeps a business successful.
Your expenses, the money you pay out to maintain your trucking business.
Your profits, the money your customers pay you for your trucking company services.
Ideally, money flows into your business at the same pace or faster than it flows out. But this rarely happens. Many expenses in trucking require immediate payment or payment on a rigid schedule. But, when you submit invoices to your customers, you wait to get paid. Sometimes you wait 15 days, sometimes 30, sometimes even 60 days or more. This can cause serious cash flow issues for small or mid-sized trucking companies because although you invoiced your customer, that invoice is not incoming cash flow until it’s paid. You need cash to pay your bills, not an invoice.
For recourse and non-recourse factoring agreements, credit comes strongly into play. Many factoring companies will explain non-recourse as “we buy it, it’s ours.” But you need to find out how they decide if they’ll buy the invoices. If they won’t buy the invoices you’re selling, they’re probably not your ideal factoring company.
The carrier is responsible for payment if your customer, the broker or shipper, does not pay. If there’s a claim on the freight, an underpayment, or other issues, you will have to re-pay the factoring company if they’re not paid by your customer.
The factoring company assumes the credit risk. A non-recourse agreement protects you if your customer doesn’t pay for credit-related reasons, like bankruptcy. If your customer doesn’t pay for other reasons, like a claim on the load or other issues, you are still responsible for the payment even in a non-recourse agreement.
We know you use credit information to make crucial decisions for your trucking company. We invest huge amounts of time and resources to provide the most current and accurate information available on brokers and shippers you want to haul for. We encourage you to check credit on every customer frequently and stay up-to-date on the information.
You shouldn’t haul freight for just anyone. Checking credit on brokers and shippers should be top priority. A factoring company that’s been in business long, and specializes in trucking, should already have strong connections with thousands of brokers and shippers to provide reliable credit information. You should be able to run as many credit checks as you need before you haul freight. The credit check should tell you if the factor will buy the invoice and how much will they buy. This helps you decide how much you are comfortable hauling. You don’t want to haul a load your factor won’t buy.
Trucking companies are mobile, and many freight factors are working to provide carriers with business solutions that fit their lifestyles. Factoring companies have embraced the digital age to offer carriers more tools to get paid faster and run their businesses more efficiently.
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Diesel fuel can take up more than 25 percent of a trucking company’s operating budget. Many new, small, or mid-sized trucking companies may not be able to get substantial fuel discounts on their own. Some factoring companies diligently negotiate diesel fuel discounts on behalf of their clients. When you combine all those gallons, they can get better discounts than one trucking company can get on their own.
When comparing factoring companies, consider how you want to purchase fuel. Do you want a cash-secured fuel card or a credit line? What truck stops do you prefer, and which ones offer discounts?
Apex clients using the Apex Fuel Card and Fuel Finder will enjoy huge fuel discounts per gallon. The savings add up even more with a $0 transaction fees when they fuel up at in-network locations. With those great fuel discounts, we save clients about $300-$500 each month per truck. We built a client-focused fuel card program that provides huge discounts off the diesel fuel cash/retail price at more than 1,500 truck stops nationwide, including our discount partners Petro Stopping Centers®, TA®, and TA Express®, Ambest, Roady’s, Sapp Bros., and more.
Many people do not enjoy collecting on invoices. That’s why most factoring companies will collect for you. Once your factoring company purchases an invoice, they want to ensure it gets paid. Yet you don’t want your factoring company hassling your customers with aggressive payment tactics. That ultimately hurts your relationship with your customer. So, you want to work with a freight factoring company that understands the importance of that relationship. You want a factoring company that treats your customers with respect.
We treat your customers the way we treat our clients – with respect. We’ve built positive relationships with thousands of brokers and shippers. We practice soft collections – hassle-free and results-driven. If any issues come up in the collections process, we make sure you’re informed that we’re doing everything possible to quickly and efficiently resolve the issue.
Choosing a factoring company is a serious business decision. Your factoring company will be sending invoices to your customers and collecting payments on your behalf. Do your research to make sure you trust the factoring company you choose. Find a factor with a good reputation and good reviews from people or places you trust.
Get to know your account representative. Make sure they know your goals. Ask questions about available services. Let your representative know of anything unexpected. They likely have had other clients experience similar situations and can offer advice and assistance.
Freight factoring with Apex gets you a dedicated account representative. We quickly respond to your questions and needs. We don’t treat clients like numbers; we get to know you and your company to provide the best service. Trucking is all we do. We are an ideal partner that continually works to provide additional services that help your business thrive.
When you are comparing factoring rates and fees, your best bet is to always look beyond the bare numbers. That’s because all factoring companies do not offer the same services. So, when you compare factoring rates you’ll want to look at what your company needs and what you’re getting if you choose that factoring company.
Factoring companies charge a small percentage of each invoice you factor. To determine a factoring rate, they will consider the customers you haul for, the volume you plan to factor, whether you choose a recourse or non-recourse factoring plan, and the risk involved.
Be wary of a quoted rate before the factor knows anything about your company. Imagine this: You call a truck dealer and say, “I have a truck to sell you, how much will you give me?” Before they answer, they will ask about the make and model, the year, the condition of the vehicle. Then you might get an estimate, but they will want to see the truck before you get a solid offer.
That should be just like talking to a factoring company. To get an accurate and fair rate, they should understand your business and plans. Otherwise your rate might be too high and hurt you, or too low and they won’t buy your freight bills.
Apex Capital factoring rates are custom. We offer both flat and tiered factoring rates and they’re customized specifically for your business. Not all trucking companies are the same, and the factoring rates shouldn’t be either! To determine your custom trucking factoring rate, we learn about your business, your customers, and the type of freight you typically haul.
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A flat factoring fee is a fixed percent charged by the factor. With a flat factoring fee, you pay the same percentage for every invoice.
A tiered factoring rate is a percent charged by the factor that varies based on your customers payment. The brokers and shippers you work with probably have varying payment terms. So, a tiered factoring fee percentage could be different for each invoice and vary between customers.
Factoring is offered as a cash flow solution in many different industries, and there are numerous factoring companies that will factor multiple types of businesses. Consider finding a factoring company that specializes in trucking. Factors that specialize in trucking focus their attention on serving the needs of trucking companies, like yours, so they may have some advantages over companies that factor for a lot of different industries.
Would you prefer to talk to someone who knows your name or be treated like a number? Do you want to be able to call someone directly when you have questions? Find out if you’ll have a dedicated account representative that truly cares or just a general call number. Will there be someone who knows your account, and be willing to answer questions as well as resolve issues?
You can learn a lot about a factoring company by asking for referrals. We bet you know someone at another trucking company who’s working with a factoring company. Ask your friends about their experiences. Do they like their representatives? What kind of service do they get? There are good and bad factors, so don’t let horror stories scare you away from factoring.
Another good referral source for factoring companies are brokers and shippers. Don’t upset your customers by working with a factoring company they don’t like. See if they have any experience with the companies you’re considering to be sure everything goes as smoothly as possible.
When you’re researching companies, search online for information. The Better Business Bureau is a good place to look for a business rating. The companies that have been around for a while probably have reviews on Google and Facebook you can read. If you can’t find anything about them, that could be something to consider as well.
Look at their list of additional services and free tools. Do they offer services that you and your drivers would use? Factoring companies usually have a list of advantages, or extras, that they offer to their clients such as: hotel discounts, fuel discounts, tire discounts, roadside assistance, free, or discounted load board subscriptions, and more.
The most important thing a carrier should do when deciding on a factoring company is to read and understand the factoring contract and any other document that requires a signature. Know the difference between an all-asset lien and an accounts receivable lien and only work with a factoring company that files an accounts receivable lien.
So, is factoring worth it? There are many factoring companies to choose from and they’re all a bit different. Now that you’ve read through this guide, make a list of the things that are important to you before you begin your search. The key to finding the best factoring company is doing your homework and asking questions. There might be advantages to one factor over another that we haven’t even thought of.
Apex has been factoring for trucking companies for more than 25 years. We’ve helped thousands of small and new trucking companies get started and grow. Talk to us and see if Apex factoring is a good fit for your trucking company.