Truck Factoring: What You Need to Know
Are you an entrepreneur dealing in trucks? Then, you must be knowing the challenges of getting paid on time. it is rare that the truckers get paid right at the end of a delivery. Most of the time, the trucking companies keep waiting for their money for several months. This is when the Trucking factor companies can help you and fill in late payments.
What is factoring in trucking?
Also known as transportation factoring and trucking invoice factoring, truck factoring pays you a maximum sum of money within days or hours rather than waiting for 4 to 6 weeks. In this factoring method, you can sell the invoices to a third-party financial company called factor and get cash in return. Most of the factoring companies provide around 90% of the bills and the remaining amount is given by the factoring company when the latter collects payment from the clients. The factoring company charges a minor factoring fee for the services.
How does it work?
When you enter into a factoring agreement, you will have to send your paperwork. This is how the truck factoring work:
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Once you drop off the cargo, get the invoice or bill of lading from the shipper.
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Submit paperwork to a factoring company. Check with the factoring company to know which specific details you need to submit.
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Get paid with 90 to 95% of the bill value. Once you sell the outstanding invoices, the factoring company pays immediately after deducting their fees.
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The factor will collect the payment from the shipper and pay you the remaining amount.
Types of trucking factor services
There are two types of trucking factor service:
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One is the Recourse factoring in which the factoring company does not bear the credit losses that happens due to the customer defaulting the bill.
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The second one is the non-recourse factoring, in which the factoring company suffers the credit losses due to the customer defaulting on the invoice.
Benefits of factoring trucking invoices
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When there is a lag time between delivery and payment, then truck factoring helps to provide you with the working capital.
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You can use the upfront cash in paying bills, expanding your operations, etc.
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With factoring, you don’t accrue any debt. It doesn’t affect your credit score too.
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The factoring companies handle the back-office task of collecting your bill from your clients. So, you don’t have to spend your time and money chasing them for money. You can use that extra time to grow your business.
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In the non-recourse payment, though the fees are higher than recourse factoring, it also protects your funding. You don’t have to go through the tedious task of debt collection.
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Factoring can also be done using the mobile phone app.
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There are no hidden cost surprises when you sell your invoices to the factoring company.
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