You've probably seen ads for different factoring companies in truck stops, trucking publications, and billboards up and down the interstates, but 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 service. It works because you get money a lot quicker than you would waiting on an invoice to get paid.
But with all the different factoring companies out there, you may be overwhelmed with options.
Here's the final installment of tips that will help you make your factoring choice a little easier…and smarter!
Fuel Cards – Does your factoring company offer a fuel card program? There are many types of programs available. Some are more widely used than others. Understand the benefits and where these cards are accepted. Some fuel cards offer discounts on fuel, can be used at ATMs, grocery stores, and other places. Look for options such as Comdata, T-Cards, Fleet One, Fuel Man, MultiService, and many others.
All Sales or Partial Sales? – Some factoring companies require you to factor all of your invoices with them. They charge a factoring fee on all of the sales. Others allow you to pick and choose which brokers you want to factor. If you can pick and choose, you only pay factoring fees on those you factor. Also look at how they determine the fee. Some factoring companies will charge a factoring fee on the gross amount of the invoice, while others will only charge on the net amount. For example, if you hauled a load for $1,000 and you took a $500 fuel advance from the broker, some factoring companies will charge the factoring fee on $1,000 while others will only charge the factoring fee on the $500. Understand the policy of the factoring company before you sign the contract.
Length of Contract – Some factoring companies have no long-term contracts, which mean you can stop factoring at any time. Some have term contracts ranging from 3 to 24 months. If you sign a long- term contract and are not happy with your factoring company can you get out of it?. What does it take to cancel your contract? Are there any fees? Understand the termination policy before you sign a contract of any length.
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.