Factoring can be a great way to improve your cash flow and keep your trucking business running smoothly. Before you can take advantage of this financial service, it’s essential to understand what factoring companies look for when choosing a client. Knowing why you’re a good candidate not only prepares your business for success but also helps you secure terms that best fit your business needs.

Client’s Business Stability and Growth Potential

Factoring companies prioritize working with carrier companies that have a proven track record of successful load delivery for reliable customers.

• Annual Revenue: A history of consistent work with reliable customers reduces risk for the factoring company.
• Well-Maintained Financial Records: Clear and organized financial records are crucial for showcasing your business's stability.
• Strong Gross Margins: Factoring companies will prioritize clients that have a consistent record of generating at least 20% gross margin. 

A reputable factoring company will only enter into an agreement if it enhances the financial health of the carrier company. To determine if your company is a good candidate, read our Guide to Evaluating if Your Trucking Business Would Benefit from Factoring.

Client’s Customer Base

Since factoring companies receive payments from the customers of carrier companies, the financial stability and credit history of these customers are critical.

• Reputable Customers: Factoring companies prefer clients who work with established businesses and brokers with good credit histories. You should expect to provide your customer/broker list to a factoring company as part of your application. The factoring company will run credit searches on your customers and approve the ones they will factor invoices for.
• Long-Term Relationships: Factoring companies will also value clients that have long-term contracts with customers as that indicates future business stability for the client and clearly defined Net Terms. Clients with dedicated lanes will find it easier to get those customers approved for Factoring.
• Timely Payments: A customer’s record of timely and accurate payments is a critical component of a factor’s willingness to buy invoices. If a customer has a reputation for making timely and accurate payments, factoring companies will be willing to approve invoice purchases for them. 

ABC Funding’s Credit Search Tool is available to all clients, making it easy for you to work with reputable customers with good credit. Just type in a customer's Name, MC#, or DOT# in your ABC Funding app to quickly search for a customer to see their credit score and payment history before you accept a load. 

Invoices in Good Standing

Factoring companies need assurance that your invoices are reliable and will be paid on time and in full by your customers. They will closely examine the state of your invoices.

• Accuracy: Invoices must accurately reflect the agreed-upon terms, including amounts, dates, and services or goods delivered.
• Verification: Invoices should be verified and acknowledged by the customer before a factoring company will approve them for payment. 
• Industry Compliance: Invoices should meet industry standards and regulations, including verified Rate Confirmation documents and signed BOLs.

By understanding these criteria, you can better prepare your business to meet the expectations of factoring companies, making it easier to secure the financial support you need to grow.

Is Your Trucking Business Ready for Factoring?

Understanding what factoring companies look for can enhance your ability to secure favorable terms and improve your cash flow. To further prepare for securing a contract that meets your business needs, check out our article on How to Negotiate a Good Factoring Contract.

If you’re ready to explore how factoring can benefit your trucking company or need assistance in improving your financial practices to meet factoring requirements, our team is here to help. Together, we’ll navigate the process and secure the best terms for your business needs. Contact us to see how we make factoring as easy as ABC. 

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