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The Secrets of Freight Factoring: Your Comprehensive Guide

Welcome to the complete guide to freight factoring. Freight factoring is sometimes called load factoring or trucking factoring, but for this guide we are going to keep things simple and refer to it by its most common name, “freight factoring.”

In this guide we will discuss what freight factoring is, give some options for factoring companies, and weigh the pros and cons of freight factoring.

In this guide:

What Is Freight Factoring?

Freight factoring is a financial service that provides trucking companies with immediate payment for their outstanding invoices. It allows trucking companies to receive payment for goods or services delivered to their customers, even if the customers have not yet paid.

Freight factoring is made much easier when it’s integrated with your TMS (transportation management system). Alvys has freight factoring integrations and many more that help keep your trucking business profitable and growing.

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How Does Freight Factoring Work?

Freight factoring can provide trucking companies with a quick source of cash flow, which can be especially useful when they are waiting for customers to pay their invoices. It can also help trucking companies manage their cash flow and reduce the risk of financial instability.

Here’s how it works:

Step 1. A trucking company delivers goods or services to its customers and issues invoices for payment.

Step 2. The trucking company sells the invoices to a freight factoring company, which advances the trucking company a portion of the invoice amount, typically between 70% and 90%.

Step 3. The freight factoring company collects payment from the trucking company’s customers and, once payment is received, provides the trucking company with the remaining balance of the invoice, minus a fee (around 3.5%) for the factoring service.

Freight factoring is not a loan, so trucking companies do not have to worry about taking on debt or paying interest. Instead, they simply pay a fee for the factoring service, which is typically a percentage of the invoice amount.

Freight Factoring Companies

1. Fleet One

A nationwide provider of freight factoring services, Fleet One offers competitive rates and flexible funding options to trucking companies.

2. TBS Factoring Service

TBS is a leading provider of freight factoring services that offers same-day funding and a range of additional services, such as fuel cards and insurance.

3. OTR Solutions

OTR is partnered with DAT. The offer factoring services directly in the DAT load board. Their goal is the make sure you get paid fast.

4. eCapital

Services include recourse and non-recourse factoring. Free credit checks. As with some other factoring companies, eCapital offers discount fuel cards.

5. Triumph Business Capital

Triumph Business Capital is a provider of freight factoring services that offers same-day funding and a range of additional services, such as fuel advances and back-office support.

These are just a few examples of the many freight factoring companies that are available in the United States. Be sure you carefully evaluate your company’s needs and compare the services and rates offered by different freight factoring companies before choosing one.

Alvys is integrated with several freight factoring services. If you’re looking for software to help you run your trucking company, check out Alvys today!

The Drawbacks of Freight Factoring

Like any financial service, freight factoring has its pros and cons, and it’s important for trucking companies to carefully consider the potential drawbacks before using a freight factoring company. Some potential downsides to using a freight factoring company include:

1. Fees: Freight factoring companies charge a fee for their services, which is typically a percentage of the invoice amount. This fee can add up over time and may reduce the overall profitability of the trucking company.

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2. Credit risk: Freight factoring companies advance payment to trucking companies based on the creditworthiness of the trucking company’s customers. If a customer fails to pay, the freight factoring company may not be able to recover the full invoice amount, which could impact the trucking company’s cash flow.

3. Customer relationships: Some trucking companies may be hesitant to use freight factoring because it involves selling their invoices to a third party, which may be perceived as a sign of financial distress. This could potentially damage relationships with customers.

4. Limited control: When a trucking company sells its invoices to a freight factoring company, it loses control over the collection process. This can make it more difficult to resolve disputes or negotiate payment terms with customers.

The Benefits of Freight Factoring

Freight factoring is a financial service that provides trucking companies with immediate payment for their outstanding invoices. It allows trucking companies to receive payment for goods or services delivered to their customers, even if the customers have not yet paid. There are several potential benefits to using a freight factoring company, including:

1. Improved cash flow: Freight factoring provides trucking companies with a quick source of cash flow, which can be especially useful when they are waiting for customers to pay their invoices. This can help trucking companies manage their cash flow and reduce the risk of financial instability.

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2. No debt: Freight factoring is not a loan, so trucking companies do not have to worry about taking on debt or paying interest. Instead, they simply pay a fee for the factoring service, which is typically a percentage of the invoice amount.

3. Reduced credit risk: Freight factoring companies advance payment to trucking companies based on the creditworthiness of the trucking company’s customers. This can help trucking companies reduce their credit risk and mitigate the risk of not getting paid.

4. Increased flexibility: Freight factoring can provide trucking companies with greater flexibility to pursue new business opportunities or invest in growth, as they don’t have to wait for customers to pay their invoices.

5. Professional collections: Freight factoring companies often have experience and expertise in collections and may be able to recover payment from customers more effectively than the trucking company could on its own.

The Final Verdict

In summary, freight factoring companies help ensure trucking companies get paid quickly. This helps facilitate cashflow and keep the business running. Otherwise you might have to wait a couple months to receive payment.

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There are many factoring companies available, each with their own benefits. Some of these benefits include fuel cards, 24/7 customer support, and integrations with load boards. It’s up to you to evaluate these companies and decide which one works best for your operation.

Working with a load factoring company can help reduce your credit risk. Factoring companies handle the heavy lifting of getting paid. They are collections experts, and it will save you time because you don’t have to call your customers repeatedly to get paid. The factoring company will handle it for you. We hope this guide was helpful in building a better understanding of freight factoring.

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