Factoring is a financial service that helps carriers manage cash flow to grow their business and stay out of bad debt. Factoring companies pay you for your loads immediately and wait for the customer to pay them. If you have net terms with your customer, factoring can transform your business. Another unique benefit of factoring is that it is not a loan.
Here’s how it works:
- Sign with a Factoring Company: A factoring company will have to approve you and your customers before you can start using the service.
- Deliver a Load: Once approved, complete a delivery for an approved customer and secure a signed BOL or proof of delivery.
- Sell the Invoice: Instead of waiting 30, 60, or even 90 days for the customer to pay, you sell those invoice documents to a factoring company.
- Receive Cash: The factoring company pays you an Advance on the invoice amount right away (~90%).
- Manage Expenses: Use improved cash flow to cover key costs like employee wages, fuel, insurance premiums, high-interest debt payments, and other expenses to keep your business running smoothly.
- Settlement Payment: The factoring company then waits for your customer to pay the invoice directly to them. Once received, the factoring company will deduct a small fee and return any remaining balance off the invoice to you.
Read about how WOW Trucking used ABC Funding to grow their business and generate a 400%+ return on their factoring cost.
What Are the Benefits of Factoring?
Factoring offers several advantages that can help trucking companies manage their finances more effectively. Here are some key benefits:
- Predictable Cash Flow: With steady cash flow, managing your budget and ensuring you don't fall behind on critical payments becomes easy. Beyond the operational expenses, factoring can also help your business escape bad debt. Carriers with equipment loans can avoid late fees and high-interest charges by working with a factoring company. The savings from extra fees and interest charges alone makes Factoring a winning strategy for improving your bottom line and maintaining financial stability.
- Focus on Business Growth: Spend less time chasing payments and more time growing your business. Factoring allows you to work with customers with longer net payment terms, helping you grow revenue without the headache of managing your critical expenses.
- Not a Loan: Unlike traditional financing options, factoring is NOT a loan. This means it is easier to get approved and faster to get the cash you need, and you don’t lock into high-interest payments or put your valuable physical assets as collateral.
For more information, read our article Can Factoring Help Your Business Grow?
What Are the Risks of Factoring?
While factoring helps carriers, there can also be some risks to consider. Understanding these risks will help you pick the right Factoring partner:
- Contract Term and Termination: Most factoring companies require you to sign long-term contracts that are nearly impossible and expensive to terminate.
- Fees: Some factoring companies charge you hidden or variable rate fees, making it hard to understand the cost of factoring.
- Contract rules: Most companies also force you to factor every single invoice, regardless of your cash flow needs. They may also charge high penalties for releasing payments from unfactored invoices.
- Delayed Payments: Some factoring companies will take days to approve your invoices and further delay payment for the invoices to you.
ABC Funding offers its clients no terms, low fees, flexible contracts, and same-day ACH payments. Explore how factoring with ABC Funding can help your trucking business succeed.
Click here for a free consultation.
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