sign up for factoring

Many trucking operations, especially ones run by owner-operators, have a narrow profit margin. This can make it difficult to grow your business. But what if there was a way to get paid much sooner to improve cash flow and experience meaningful growth? This is exactly what you could experience with a financing solution known as freight factoring. Read on to learn more about what to expect when you sign up for factoring.

What Is Freight Factoring?

What’s also referred to as invoice factoring is a financing option that provides immediate payment for your load invoices. In a nutshell, what you’ll do is sell your invoices to a factoring company. The company will pay you and collect the payment from the client.

Why Consider Factoring?

Typically, it can take up to 30 days or more to receive payment for load invoices. While larger operations can usually manage this type of arrangement fairly well, it can be a financial burden for smaller trucking businesses. With invoice factoring, it’s often possible to get approved fairly quickly. If you do qualify, factoring can allow you to:

  • Benefit from a steady stream of revenue
  • Accept more loads without being as worried about the timeliness of payments
  • Invest in other aspects of your business – e.g., updating your truck(s) or investing in software that helps with backend processes

How Does Invoice Factoring Work?

Assuming you’ve applied and your application has been accepted by a factoring company, here’s a rundown of how factoring works beyond this point. Let’s break it down into four basic steps:

1. Submit Your Freight Bills

After you’ve completed deliveries for various clients, submit your invoices to the factoring company. Some companies have customer portals and other convenient ways to scan and submit invoices online. Generally, submitted invoices must meet the following criteria:

  •  Invoices must be for completed deliveries
  • Freight bills must be unpaid
  • Invoices must be accurate
  • Freight bills cannot already be used/pledged for collateral to another company

2. Get Your Invoices Verified and Get Paid

The factoring company may verify your invoices with your customers. If everything is good-to-go, you’ll get most of the invoice totals minus the percentage that’s collected by the factoring company. Payments may be wired directly or uploaded to a fuel card.

3. Do What You Normally Do

After your invoices have been submitted, go back to running your trucking business. The factoring company will take care of any other steps that may be required to collect from your clients. You’re also welcome to submit additional invoices even before the others have been paid by your customers.

4. Collection

Lastly, the factoring company will collect payment from your clients. Once everything has been collected, the paid invoices are considered closed freight bills. This is another point when you can start the factoring process all over again.

Types of Factoring

Recourse and non-recourse factoring are the two types of factoring. If you sign up for recourse factoring, the fee is often lower, but you’ll also be responsible if a client does not pay. With non-recourse factoring, you won’t be responsible if customers fail to pay. The tradeoff is that fees are typically a bit higher.

All you have to do to get started is sign up for factoring. If approved, you’ll have access to a steady revenue stream so you can stress less as you grow your business. In some cases, there may be additional fees for submitting the application, ACH transfers, and same-day funds. However, a reputable factoring company should be upfront about any related fees.

If you have any other questions, check out our handy faq for freight factoring.

Please feel free to check out our previous step in this series, how to select the proper insurance coverage. The next step in our series is about how to how to find loads to grow your business.