Tough Economy & Rising Costs Increase Need for Freight Factoring
In today’s tough economic conditions the small trucker is challenged by low freight rates due to the current over capacity of truckers versus freight availability. Currently, the small trucker has to go farther outside their home region to pick any worthwhile freight to continue to operate and provide for their family. This summer, new government safety regulations go into effect that encompasses both the carrier operation and individual drivers. The entire trucking industry will again deal with fuel price volatility, which for the small carrier causes havoc in trying to decide if a load is really worth taking or not. And, of course, normal maintenance and repairs on your equipment is essential to operate safely on the road and continuing to make a living.
All of these items require cash, and lots of it, to get you from load to load so that you can make a living or run your business. Most small, medium, and even many large carrier fleets must use freight bill factoring to keep the cash flowing to meet the necessary expenses in running a trucking company, regardless of size.
Non-Recourse or Recourse Freight Factoring, Which is Right for You?
In today’s current trucking factoring environment, you have two choices when factoring your freight bills: recourse or non-recourse. Recourse factoring, the most available type of factoring, is the carrier’s out right sale and assignment to the factor of their right to payment for a freight invoice. More commonly, recourse freight factoring is known as invoice at a discount.
Recourse Freight Factoring
You must understand, however, should the freight invoice amount not be paid to the trucking freight factor for any reason by some predetermined date, you must reimburse the factor 100% of the advance you received, PLUS their fees. The discount rate charged by a recourse freight factor is generally never fixed; it is always variable, and increases based on the factor’s advance date to the carrier and ending with the eventual collection date of the invoice.
Non-Recourse Freight Factoring
Non-recourse factoring is the carrier’s sale and assignment to the trucking factor of their rights to payment, or invoice, to the factor. Should the company whose invoice you received payment for fail to pay the invoice, the factor absorbs the full loss and you, the carrier, have no further obligation to the factor.
All non-recourse factors charge a flat discount fee. They will typically advance 100% of the amount due the carrier, less the discount fee. This type of factoring is plain and simple, with the carrier gaining the maximum amount of cash upon the sale of the invoice to the factor. It also fixed the discount fee, however, the factor could charge other ancillary fees as well.
Performance Risk is Yours
No trucking factor takes on performance risk of any kind; those incidences are always recourse back to the carrier. Examples of carrier performance risk are: failure to abide by any broker or shipper/carrier contract provision. These contract provisions especially extend to the rate confirmation and the requirements for delivery. Any damage, shortage, and expected condition of the freight upon delivery to the consignee. However, the most important detail, and often the most missed, is the Bill of Lading evidencing the carrier as the rightful delivering party. To the factor, has the carrier properly documented their completion of the service so an enforceable obligation between the factor and the broker or shipper legally does exist? If the carrier fails to satisfy this requirement, the non-recourse factor’s credit guarantee becomes invalid.
Part 2: Recourse vs. Non-Recourse Freight FactoringCompany Cost Comparison
About the Author
By: Robert Beard, President of Pay4Freight.com – a national factoring company offering non-recourse factoring programs to the nation’s small carrier market. He can be contacted at: [email protected] or visit www.Pay4Freight.com