Oct 29

What do you really know about factoring?

Factoring, especially for the freight hauling industry, is actually a pretty simple idea. Basically, factoring companies pay you money for your freight bills, minus a small percentage for their services. It works because you get money a lot quicker than you would waiting for an invoice to get paid. Factoring enables you to focus on finding and delivering loads – while the factoring company worries about collecting the bills.

But with all the different factoring companies out there, you may be overwhelmed with options. This week, I'm offering you a few more tips that will help you make your factoring choice a little easier…and smarter!

Here are four tips that will help you pick the factoring company that best fits your trucking business needs:

Reserve Accounts – Some factoring companies hold a reserve. This means the carrier receives a percentage of the freight bill -- 90%, 93%, even 95% up front. The remaining amount is held in a reserve account and released when the invoice is paid, less the factoring fee. If the invoice is disputed, short paid, or not paid for any reason, the factoring company will use the reserve to offset what they’re owed. Some factoring companies have no reserve so the invoice is paid in full upfront, less the factoring fee.
Rates – Rates vary depending on several things: Recourse vs. non-recourse, amount of sales volume, length of contract, number of days outstanding, size of invoices, number of invoices, number of customers. Understand all of the fees associated with a factoring company before you sign up.  An inexpensive factoring fee doesn’t necessarily mean you are getting the best deal.
Credit Checks – Understanding the factor’s policy on checking customer/broker/shipper credit is also very important. Many factoring companies offer credit services for their customers, which is invaluable to clients. Do they offer an online system? How long does it take to check credit on a customer/broker/shipper? Loads go rapidly these days, so make sure you can find out quickly if your factoring company has approved the funding before you take the load.
Back Office Billing – Some factoring companies require you to invoice customers and send copies to the factoring company for funding. Others only require the bill of lading and rate sheet and they will handle the back office work. Think about how much time and money it will cost you to handle this yourself. Remember, ink for the printer, time to create the invoices, postage for mailing, and getting those invoices in the mail. Paying for back office services may be more economical for you in the long run.

David Fortner has been in the factoring industry for 20 years. He is currently the executive vice president of operations for FreightCheck based in Norcross, Georgia. Prior to FreightCheck, Fortner was vice president of sales for Bibby International Trade Finance.

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