Freight bill factoring also knows as invoice factoring is a form of short-term business financing for truck driving companies. Factoring financing helps businesses to keep cash flow constant to be able to meet all the logistics demand in their deliveries. Also, they can help small businesses bridge invoice payment gaps with upfront payments up to 90% of the original invoice.
This form of an advance business capital help trucking companies meets some of the major cost demands such as fuel, tires replacement, maintenance and repairs. For trucking businesses, finding the best invoice factoring company can make all the difference in your operations.
Ideally, you’ll be looking for a company that has efficient freight bill factoring, giving you access to cash flow within a short time.
How to Pick the Best Business Factoring Services for Your Trucking Company
Choosing a freight bill factoring company is a critical financial decision you need to make for your business. Therefore, you should be keen on what to look for. Here are several important factors to consider when choosing a factoring company.
1. Type of Factoring
Generally, there are two types of factoring which are recourse and non-recourse factoring. It’s important to know the difference between them to make an informed decision on what to choose. Recourse factoring simply states that a trucking company is supposed to buy back all the unpaid invoices should your customer fail to pay.
So any non-payment to the factoring company is yours to pay and there are two ways to do that. You either pay back the advances with additional charges or submit brand new invoices. On the other hand, non-resource factoring offloads the liability of non-payment by the client. If the factoring company is unable to collect payment on for an approved reason, you are not responsible for anything.
2. Specialized Industries
While factoring companies can lend their financing service in any industry, those that specialize in a few industries often offer the best services. It may benefit you to find a factor that knows your industry well and has experience working with trucking companies in the same sector.
But how do you know this? Well, start by asking the agent assigned to you questions touching on your industry and gauge their level of knowledge on that. For more details, ask for references and follow up to get previous customers reviews about that particular factor. All these will help you to determine if a factor is well-versed with your industry.
3. Factoring Minimums
This is another important consideration for choosing a factoring company for your business. Factoring minimum refers to the number of invoices you need to factor within an agreed period of time – monthly, quarterly, or annually. Some companies have “no-minimums” in their plans, while some will put minimums on trucking companies.
Failing to meet the minimum will only attract additional charges if your factoring company demands that. And though many people perceive minimums as a bad thing, it’s actually a great negotiation tool to get the best deal possible. Ensure you also negotiate for lower minimums – realistic and achievable targets.
4. Competitive Rates
Typically, the rates are computed based on three factors – the number of invoices, the total amount to be factored, and the client’s creditworthiness of your clients. Oftentimes some factoring companies will fail to clearly define their prices, making it a challenge for you to determine their actual rates. Also, be cautious of factoring companies that offer extremely cheap rates, most times they have other undisclosed costs that they don’t openly share.
5. Time Taken to Set Up an Account
The average days for setting up an account is 3 to 5 business days for most factoring companies. Also, depending on how much you want to factor, it could take a little longer because of the extra risk factor. Unless you urgently need cash for your operations, the duration shouldn’t be a major concern when choosing a factoring company.
Lastly, years of experience is a factor when evaluating different freight bill factoring companies. With few exceptions, the most reputable factors have been offering invoice financing for more than a decade. With the factors mentioned above in mind, you can comfortably pick the best factoring company.