Freight factoring is when a company that transports a load sells the resulting invoice from that haul to a financial company at a small discount. This can also be known as invoice factoring, load factoring, transportation factoring, or accounts receivable financing. The money the freight company receives from selling the invoice is not considered a loan or debt. Instead, factoring gets the invoice paid faster rather than waiting 30, 45, or 60 days like most invoice terms.
How Freight Factoring Works
Freight companies sell goods and services to consumers. Next, they sell invoices to a freight factoring company. Then, the freight factoring company sends 80% to 90% of the amount due to the freight company.
The freight company customer then pays the freight factoring company. Finally, the freight factoring company refunds the remaining balance minus discount fees.
In the fast-paced trucking world, freight factoring has multiple benefits.
Freight Factoring Benefits
1. Helps Freight Companies Avoid Debt
Freight factoring funds flow directly into the freight company’s bank account. This allows business owners to pay drivers, buy fuel, pay for repairs, and pull more loads. And because this funding happens quickly, these tasks can be accomplished on-time.
2. Same-Day Funding
Once a freight company has an established relationship with a factoring company, they can provide funding as soon as a load is delivered. For small or startup businesses, freight factoring means more working capital and cash flow. For larger businesses, freight factoring can help to maintain a positive cash flow.
Because funds are received quickly, trucking company owner-operators can spend more time on areas of their business that allow for greater profitability.
3. Free Credit Checks
Freight factoring is not based on the freight company’s credit. Instead, it is based on the credit of the company the freight company is hauling for. This means that, as part of setting up your account with the factoring company, they run your customer’s credit for you. This helps freight companies get to know their customers, lowers costs, and provides a sense of security before hauling.
Freight factoring also gives suppliers and vendors a sense of security in the freight companies. Vendors know that working capital allows for negotiation of terms and savings that are more favorable for them.
4. No Set Limits
Bank lines have limits, and companies have to request increases that take time for approval. However, factoring lines are dynamic. As long as the freight company works with credit-worthy brokers and shippers, the factoring company can grow quickly with the freight company.
This is especially important in the current landscape where freight companies have new opportunities every day. Factoring services help you seize the business opportunities quickly.
With the flexible nature of freight factoring, small businesses can factor as few or as many invoices as they need to operate efficiently.
5. Equipment Loans
Many factoring companies, like Catalyst Financial, can also offer equipment loans to help grow your fleet. From trailers to lifts to cargo straps, equipment loans can help fuel growth and meet customer demands.
Trucking companies can finance up to 90% of their equipment purchases and receive loans with terms up to 48 months.
It’s convenient to have all of your financing in one place by adding equipment term loans into your working capital line of credit.
A Freight Factoring Success Story
Alexis Group Logistics, a trucking company located in Baton Rouge, Louisiana, was growing quickly. However, one of their biggest customers required 45 – 60 day terms before paying their invoices. While the customer had excellent credit, and always paid their invoices, Alexis Group needed to faster working capital to run their business.
Alexis Group Logistics was a perfect candidate for freight factoring. Freight factoring allowed them to take on new opportunities and grow. By freeing up cash flow, they were able to pay drivers quicker which helped them retain drivers for longer. They also qualified for equipment financing which allowed them to purchase additional trucks and run more efficiently.
“Working with Catalyst was the best choice we have ever made! The staff is amazing, extremely helpful, and very courteous. They are also extremely quick with equipment financing. On a scale of 1-10, we would definitely rate them a 100!!”
Wayne Alexis Jr., Alexis Group Logistics Co.
How would faster invoice payments help your freight company grow?