Cash flow issues are prevalent in the transportation industry because freight brokers or shippers often take 30, 60, or even 90 days to pay after a load is delivered. This delay can create significant financial strain as operating expenses continue to accumulate. Gaining access to working capital becomes crucial yet challenging.

If you're in the trucking industry, you might have heard of "freight factoring." But what exactly does it entail, and is it the right solution for your trucking business? Read on to learn more about freight factoring and how it can enhance your company's cash flow.

What is Freight Factoring?

Freight factoring means selling your unpaid invoices to a factoring company to get cash right away. This eliminates the wait for invoice payments, providing immediate funds to cover expenses and accept new loads. Freight factoring is especially beneficial for trucking companies that are just starting and lack the capital to cover costs between payments. This financial tool allows small owner-operators and fleet managers to continue accepting loads and growing their business without incurring new debt.

Unlike traditional bank loans, freight factoring doesn't create new debt for your business. The approval process is generally quick and since it is based on your customer's creditworthiness instead of your own. Since the factoring company gets paid by your customers, their creditworthiness is the key approval factor.

How Does Freight Factoring Work?

Here's a simplified process of how freight factoring works:

1. Application: The trucking company submits an application to Capital MBS and will provide you with the best rates, terms, and solutions while helping you avoid hidden fees in a factoring agreement.

2. Booking and Hauling: Once approved, the trucking company books a load, hauls it, and gets a rate sheet. A bill of lading (BOL) is signed to confirm pick-up and drop-off.

3. Submission of Documents: After the freight BOL (Bill of Lading) delivery, the rate sheet is sent to the factoring company for payment.

4. Advance Payment: The factoring company advances the invoice amount minus a factoring fee, typically within 24 hours.

5. Customer Payment: The freight broker or shipper pays the factoring company within 30 to 90 days.

Most factoring companies will credit-check your clients to minimize non-payment risk, helping you choose reliable brokers and shippers. Trucking companies must also decide if they want to sign up for recourse or non-recourse factoring agreements. A non-recourse factoring contract means that the factoring company takes on the risk if the customer goes out of business and doesn't pay. Most of the time it is accurate if the broker goes out of business. On the other hand, recourse factoring means the trucking company retains that risk.

Benefits of Freight Factoring

Freight factoring offers numerous benefits for trucking companies of all sizes:

• Quick Access to Cash: Immediate funds to manage operational costs and take on new loads.

• Fuel Advances and Discounts: Benefit from fuel card programs that offer advances and discounts.

• No Long-Term Contracts: Flexible terms that adapt to your business needs.

• Operational Flexibility: Helps new and small trucking companies grow by providing consistent cash flow.

• Credit Flexibility: Approval is based on your customer's credit, not yours.

What Does a Freight Factoring Company Do?

A freight factoring company provides quick payments, often within 24 hours, improving your working capital and cash flow. Beyond eliminating the wait for invoice payments, these companies offer additional services:

• Credit Checks: Free credit checks are available on your customers to avoid bad debtors.

• Back-Office Support: Assistance with billing, invoicing, and collections.

• Fuel Card Programs: Discounts and advances on fuel purchases.

• Regulatory Compliance: Help with compliance issues and establishing trucking authority.

• Flexible Contracts: Options ranging from month-to-month to long-term agreements, with non-recourse or recourse factoring choices.

How Much Do Freight Factoring Companies Charge?

Factoring companies charge a small percentage per invoice. The rate can be 0.65% to 3%.  The rate is often based on the following:

• Business Size and Revenue: Larger companies with higher revenues may get better rates.

• Customer Creditworthiness: Clients with good credit typically incur lower fees.

• Factoring Volume: Higher monthly factoring volumes can lead to discounted rates.

• Contract Length: Long-term contracts offer better rates compared to short-term agreements.

• Reserve Account: Some factoring companies hold a portion of the funding amount in a reserve account until the broker or shipper pays.

• Additional Charges: Charges may be assessed for ACH or wire transfers, and some companies set monthly minimums that affect the rate charged. Contact Capital MBS so we can introduce Factoring companies that do not have hidden fees.

Choosing the Right Freight Factoring Company

When selecting a factoring company, consider the following:

• Speed of Payment: Ensure they offer same-day or next-day funding.

• Additional Services: Find companies offering fuel cards, credit checks, compliance support, equipment financing, and insurance all under one umbrella to get better savings in 2024's challenging times. Every dollar saved can contribute to the company profits. 

• Transparent Terms: Avoid hidden fees and understand the contract terms fully.

• Customer Support: Accessible and responsive client representatives are crucial.

Avoid factoring companies with unexpected chargebacks and high monthly minimums, as these can be detrimental to your business. Additionally, stay away from companies with only long-term contracts, high termination fees, and variable rates that are based on prime. 

Partner with Capital MBS for Superior Factoring Solutions

Trucking companies seeking the best factoring providers should consider partnering with Capital MBS. We work with many top factoring companies to secure better rates and offer comprehensive 360% solutions that are not available to the general public. Under one umbrella, your business can benefit from:

• Factoring: Gain immediate access to working capital with competitive rates.

• Discounted Equipment Financing: Get better rates when purchasing new or used trucks or trailers.

• Lower Cost Insurance: Save on insurance costs with the option of insurance financing.

• Fuel Cards: Access fuel card programs that offer significant savings and advances.

• ELD Book Services: Enhance compliance and efficiency with cost-effective ELD logbook services.

Contact Capital MBS today to discover how our specialized financial solutions can transform your trucking business. Let us help you unlock your company's potential with reliable cash flow solutions and exceptional service. This will let you to face these challenging times with more confidence.