Freight factoring or invoice factoring can be a cost-effective way to manage your invoices and maintain a steady cash flow. As you search for a factoring company, realize these companies aren’t all the same. For this reason, it can be helpful to know what to consider when choosing a company specializing in factoring that’s right for your needs, goals, and budget.
1. Factoring Terms
Look for a factoring company that offers some flexibility with its agreements and terms. Even a long-term contract can be beneficial as long as there’s some flexibility with rates or opportunities for price breaks. It’s also common for many companies to adjust rates based on the volume of invoices received, or to be willing to match competitive offers.
2. Contract Renewal Processes
Typically, freight factoring companies offer one-year contracts. Factoring contracts often renew automatically unless you give 60-90 days notice, but this isn’t always the case. So, be sure to ask about a company’s contract renewal process so you won’t be caught off guard when your contract expires.
Some companies will charge a flat rate that’s a certain percentage of the invoice total, and others have added fees for software, money transfers, and other business-related costs. While there’s nothing wrong with this, it’s best to work with a company that’s upfront about fees before you agree to anything. Also, ask about other possible hidden fees that could include:
• Minimum-volume fees that apply if you don’t submit a certain amount of invoices per month
• Invoice uploading and processing fees
• Quick pay fees
4. Recourse and Non-Recourse Options
Find out how a company you are considering handles invoices that can’t be collected on if the client fails to pay. These are two approaches to freight factoring as it pertains to handling unpaid invoices:
With the recourse option, you are responsible if one of your clients fails to pay their invoice. A reliable company will typically make every effort to collect on invoices before sending them back to you.
Also, consider a company that won’t expect you to pay the full invoice amount. Companies that do this may take a portion of future advances to cover unpaid invoices.
With the non-recourse option, the company assumes more of the risk associated with invoices. However, this typically only applies if a company files for bankruptcy within a specific period of time from the date when the invoice was issued.
You don’t necessarily need a company that offers both recourse and non-course options. A company with a capable credit department can be just as advantageous for you. Take a look at this article to learn more about this Guide to Freight Factoring for Trucking Companies and Owner-Operators
5. When the UCC Is Filed
Some companies file a uniform commercial code (UCC) as soon as you apply, and others wait until there’s a signed contract. A UCC is necessary because it allows the company you work with to claim what you’re claiming as collateral so you can secure financing. It’s generally best to go with a company that waits until a contract is signed to file a UCC. If a UCC is filed when you apply and you go with another company, the existing UCC will have to be terminated. This can result in delays for you.
6. Capacity to Grow with You
When your business grows you should steadily boost your flow of invoices, which is a good thing. However, you want to make sure you are working with a company with the resources to fund your invoices as your operations grow.
It’s also worth considering what the application process is and kind of technology a company uses so you can quickly submit invoices and access your account info. The company’s reputation should be considered as well. Lastly, find out how you would go about contacting a factoring company if you have questions or a factoring-related issue. Thinking of your next line of action? Take a look at this article and see Reasons to factor with us