Factoring is used by carriers all over the world as a way to assist with cash flow for their business. There are many things to consider when looking at factoring your freight bills. What factoring company should I go with? The answer is, "It truly it depends." What are you looking for? What is important to you? What services best fit your needs?
Many trucking companies (carriers) simply look at price and nothing else-and sometimes you get what you pay for. When you have a question or a problem, is your factoring company there to help you? How experienced is the customer service?
There are many things to consider when selecting a factoring company to support your cash flow:
Factoring costs vary depending on the services provided and the size of your business and facility needed. Non-Recourse factoring typically carries a higher price than Recourse factoring because the factoring company is taking the credit risk. Non-Recourse does not cover disputed items between broker and carrier, so it's cheaper but the risk if yours.
Some carriers want to factor all of their bills and they don't care if they have credit coverage because their customers always pay. If this is you perhaps you should consider a recourse product. It is generally cheaper and has less services offered with the program. Also, many recourse lenders hold a reserve, meaning they will pay a percentage of the invoice up front.
Many factoring companies pay their carriers using fuel cards, like Comdata or Fleet One. That lets the carrier decide where to spend their money. From the fuel card you can purchase fuel and other products at a fuel stop, transfer funds to your bank account, pay for services such as oil changes, tires, maintenance, and various other services. In some cases you can write a check off of the fuel card.
Your length of commitment will vary depending on the factoring company. Some require a minimum of 3, 6 or 12 months, or even a 2-year commitment. Make sure you understand the cost of terminating the agreement if you are unsatisfied with your factoring company.
Some companies will pay you within 8 hours of receiving the freight bill. But it could take as long as 24 hours to a few days with others. Understand what you should expect when and how you send your freight bills to your factor. Some let you fax or e-mail your freight bills while others require the original freight bills, which you'll have to send (and pay for) by UPS, FedEx, or TripPak.
Factoring your freight bills should take the guess work out of knowing when you are getting paid. There are factoring companies that will generate the invoice, mail it, and follow up with the broker for payment. Meanwhile, the carrier can focus on what they do best-trucking.
Find out what kinds of reports are available and how to get those reports. Many factoring companies have on-line systems which allow carriers to pull reports 24/7 to make it hassle-free.
All in all, knowing the features and benefits of the different types of factoring companies will help you pick the right one to fit your needs and it will help you become a successful business owner.
Ask the right questions and you will find a factoring company that best suits your business and specific needs. Choose wisely and you can free yourself up to focus on finding your next loads instead of worrying about your finances.
Guest Post from David Fortner, Executive VP of Operations, FreightCheck