Imagine this scenario: You run a transport company, who just completed two deliveries yesterday, and are about to ship off two more when you get a call from your driver asking to be paid for yesterday’s deliveries. You check your bank account and see the company account running on fumes because the deliveries made yesterday, still haven’t been paid for, nor the ones made during the past week. Concerning right? But with the right freight factoring company, such struggles are a talk of the past as these companies give you immediate cash flow in return for your unpaid invoices, making it easier for you to manage operational costs.
If you’re looking for a solution to the very problem, you’ve come to the right place, as this article will guide you through the benefits of factoring your invoices instantly, as well as what to look for in a freight factoring service.
What is a Freight Factoring Service?
A freight factoring service refers to a company of service that offers you instant cash in return for your unpaid invoices. The fundamental this works on goes like this:
- The factoring company collects all unpaid invoices.
- They estimate the value of the invoices and offer you about 90-98% of the total value.
- You get the estimated value credited to your account instantly.
- The factoring service waits 30-90 days for the complete invoice payment from the original receiver.
- After receiving the complete payment, they deduct ~5% fee for their service and credit you the rest of the amount too.
What to Look for In a Freight Factoring Service?
The best freight factoring service will not only give you the peace of mind from the cash flow but also be quick with the review process before actually crediting the amount to you. However, this isn’t the only quality you should look for while choosing a factoring company. Read the points below to understand what exactly should you ask before deeming a factoring company fit for your transport business:
1. The Amount of Time They Have Been in Business For
You will thank yourself later for choosing the freight factoring company with the longest term of experience at its hand. Why? Because this gives you a look into how stable and effective they have been with helping other businesses like yours. It is also telling of the experience they have had with collecting payments from receivers and how efficiently they carry the whole process out.
2. See If They Have Experience With Your Industry and Types of Clients
It is a very important question to ask your factoring company if they have experience in your industry and with the type of clients and receivers you deal with. If they do, they will be able to handle collecting the payments on their own without delay and without having to call you up and ask questions about the industry jargon, pain points, and other nitty-gritty details, thus, making the whole partnership fruitful for yourselves and them too.
3. If They Are an Independent Freight Factoring Service or Backed By a Bank
This is one of the major deciding factors because a service backed by a bank will obviously be more credible, stable, financially sound, and efficient when it comes to dealing with your clients. This also improves the credit facility they offer as well as the fact that working with a bank-backed factor will also increase your likelihood of qualifying for a business loan.
4. Ask for a Complete Cost Breakdown
Before signing a contract with a freight factoring service, ask them to quantify all taxes and charges they deduct. This will help you understand the deductions you’ll have to pay for every invoice or bulk invoices. Their cost breakdown should include these costs and percentages clearly:
- Application fee
- Monitoring fee
- Credit reporting fee
- Adding a new factoring customer fee
- ACH fee
- Renewal fee
- Audit/field exam fee
- Wire transfer fee
- Monthly minimum/volume fee
- Early contract termination fee
5. Ask How Quickly They Verify the Invoice and Credit the Payments
This is the most important question to ask before signing a contract with your chosen freight factoring company, so, ensure they offer a same-day or 48 hours fund crediting timeline. Receiving funds in this stipulated timeline will help you expect payments and plan business operations accordingly.
Choosing The Best Freight Factoring Company: Your Solution to Late Payments
The best freight factoring company will act more as a partner than a third-party when it comes to collecting payments from delivery receivers, at a very nominal fee. By providing you instant cash that is almost as much as listed on the invoice, it becomes easier to manage all finances of your business, knowing that you will surely receive the rest of the amount soon too. This frees you from the hurdles posed by chasing payments and records so you can have a free mind that is solely focused on growth and not just barely making it. Thus, find yourself a fitting company to factor all your invoices in the long-run so you can scale comfortably.