Freight Factoring Guide
Freight Factoring Guides Trucking Companies to Success
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Freight Factoring for Cash Flow
What is Freight Factoring?
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.
How Freight Factoring Works
- You haul and deliver a load for your customer.
- You send the load’s paperwork and invoice to your factoring company.
- The factoring company buys the invoice and you receive payment from them.
- The factoring company sends the invoice to your customer.
- The factoring company collects payment from your customer for the invoice.
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Freight Factoring for Trucking
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.
Freight Factoring for Business Growth
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.
SOME FREIGHT FACTORING COMPANIES ADVANCE YOU THE MONEY YOU NEED IN LESS THAN 24 HOURS OF PURCHASING YOUR FREIGHT INVOICES. OTHERS MAY TAKE LONGER, SO ASK ABOUT PROCESSING AND CUTOFF TIMES.
What are the Benefits of Freight Factoring?
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.
What is Cash Flow?
Cash flow is incoming and outgoing cash that keeps a business successful.
Outgoing cash flow
Your expenses, the money you pay out to maintain your trucking business.
Incoming cash flow
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.
What is Recourse and Non-Recourse Factoring?
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.
Recourse and non-recourse factoring reminders:
- A factoring company should keep you informed about collections issues.
- It’s common for factoring companies to charge more for a non-recourse plan to cover the extra risk.
- Always read and understand any proposal or contract that you are required to sign so you know how these situations are handled.
What does Apex do?
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.
What About Checking Credit?
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.
Apex Credit Benefits:
- Unlimited, free credit checks 24/7/365
- A dollar amount, so you know how much we’ll buy and can decide exactly how much you are comfortable hauling
- Available 24/7/365 on the Apex client Account Management Portal (AMP), the Apex Mobile Factoring™ app, and NextLOAD.com.
- Clients can also call our credit department during business hours to get credit information, request a credit review, or credit increase for a potential customer. Our credit department reviews the credit line during business hours and responds within minutes.
What about Factoring Technology?
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.
What to look for:
- Digital paperwork – Paperwork is still essential in trucking, but it’s getting more advanced. Many factors encourage you to send proof of delivery through mobile apps, emails, and scans. This can lead to huge cost saving.
- Proof of delivery – Does the factoring company accept PODs from the road through mobile apps, emails, and scans? Are there any processing fees?
- Unlimited online access – Is there a client-focused website that you can access 24/7/365 to get information about your account? Find out if your information will be in real-time, which reports are available on-demand, and whether you can create and submit invoices online.
- Free Mobile App – Many factors offer mobile apps but be sure to find out the exact details. For instance, does their mobile app make the process easier? Is their mobile app a money-saver? Can you capture images and submit BOLs and PODs with the app? Can you create and submit invoices?
- Other technical tools – Some factoring companies have created fuel finders, load boards, online invoicing, document storage, and reporting to make operating a trucking company from anywhere, anytime more convenient. Ask any factoring company what additional services they offer to help you run your business.
What Does Apex Do?
Apex factoring clients can access their accounts 24/7/365 through our exclusive online Account Management Portal (AMP) and mobile app. AMP provides 100% account transparency with real-time updates.
- Run free, unlimited credit checks
- Run reports on aging, concentration, fuel and more
- Request funding from your reserve
- Create invoices and submit for funding
- Choose 24/7 Factoring to get paid at night, on weekends, and on bank holidays
- Use blynk™, our digital payment system, to get paid in minutes
- Store important documents to easily send on demand
- Access documents uploaded by your drivers from the Apex Mobile Factoring™ app
- Access Apex’s Cash Flow Assistance (CFA) program
- Use the Apex Fuel Finder to find the best fuel prices along your route
- Access NextLOAD.com to find freight to haul
Fuel Cards and Fuel Discounts
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?
What Does Apex Do?
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 1,200 truck stops nationwide, including our discount partners Petro Stopping Centers®, TA®, and TA Express®, Ambest, Roady’s, Sapp Bros., and more.
How Factors do Collections
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.
What Does Apex Do?
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.
What about Trust?
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.
What Does Apex Do?
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.
How much does factoring cost?
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.
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Trucking Factoring Rates
Flat Factoring Rates
A flat factoring fee is a fixed percent charged by the factor no matter if the invoice gets paid in 15 days or 60 days. You will get charged the same percentage for every invoice. This benefits some companies and makes planning your cash flow a little easier.
Tiered Factoring Rates
Tiered factoring rates are another way factoring companies can set up your account. The brokers and shippers you work with probably have varying payment terms. With a tiered factoring rate, the percent you pay varies depending on how long it takes your customer to pay. So you will pay a lower factoring fee for an invoice that pays in 15 days than you will for an invoice that pays in 60 days.
How to find the best factoring company for you
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.
Brokers and Shippers
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.
Read the Reviews
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.
Finding Additional Services
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.
Read the Fine Print
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.
Read the contract closely and find answers to these questions:
- What type of lien is being filed?
- Is this a long-term contract?
- Does the factoring company collect on invoices?
- If so, are they aggressive or do they build relationships with your customers and treat them with respect?
- Is there a volume minimum that must be factored?
- If so, what is it and what are the penalties for not meeting the minimum requirement?
- Is there a termination fee?
- If so, what is the fee and how much notice does the factoring company require to terminate?
Finding the Best Factoring Company
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 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.
- FREE credit checks
- Fast and reliable funding
- No monthly minimum volume fees
- FREE online Account Management Portal (AMP) with 24/7 access
- 24/7 Factoring to get paid at night, on weekends, and on bank holidays
- FREE Mobile Factoring™ app with image capture technology
- A highly experienced account executive to help you manage your account
- Professional collections on factored invoices
- Low, competitive rates with same-day and next-day funding
- No long-term contracts or termination fees
- FREE fuel card with discounts on fuel nationwide
- Fuel credit lines when you factor
- FREE fuel finder
- FREE unlimited access to our exclusive load board, NextLOAD.com
- FREE membership to Apex’s 24/7 Roadside Rescue™