Freight Invoice Factoring - Know the Pros and Cons

eCapital Corp

Last Modified : Jan 23, 2024

Fact-checked by: Bruce Sayer

If you’ve been in the transportation industry for a while, you’ve heard of factoring. It is far from a new financial service. And there’s a reason it’s been around forever: Freight factoring has maintained its presence in the industry because of how it improves business cash flow, enabling transportation companies to be successful.

To put it simply, freight invoice factoring is when owner operators or small and large fleet owners sell their unpaid invoices to a factoring company for a small fee. Factoring pays you up to 98% of your outstanding invoices within 24 hours so you can keep your business moving. When your customer (also known as the debtor) pays the invoice, the factoring company pays you the remainder of the invoice amount (called a reserve), minus a small fee.

What are the PROS of freight invoice factoring?

• It’s easy to qualify and approval is fast.
  Applying for factoring takes as little as a few minutes. And approval usually takes a few days or less. It’s a lot easier than trying to secure a loan from a bank which involves tons of time, scrutiny over your finances and a mountain of paperwork.
• You’ll get paid faster.
  Once you’re approved to factor, you can submit invoices and get paid within 24 hours. No more waiting anywhere from 30 to 90 days for invoices to be paid or watching your mailbox for checks to arrive. Cash is deposited directly to your business bank account, sent via wire transfer or loaded onto a card.
• Your credit isn’t much of a factor.
  Do you have bad credit? If you want to factor your invoices, that’s not a problem. If you have a low credit score or even bad credit history, you can still qualify for factoring. Approval is mostly dependent on the creditworthiness and payment history of your customers. This makes factoring convenient for — and attractive to — start-up trucking companies.
• No debt is created.
  Factoring isn’t a loan. You’re not borrowing any money. Instead, you’re advanced the cash for loads that you’ve already hauled and delivered. It’s your money, you’re just receiving it faster.
• Your business equity isn’t lost or compromised.
  Factoring is a unique type of financial transaction that won’t tie up your business equity or prevent you from securing financing from a bank in the future for the purchase of new trucks, for example. Again, this is your money that you’ve already earned. Factoring just eliminates the uncertainty of when you’ll receive it.
• Save on your biggest expense – FUEL.
  Some factoring companies have fuel card programs to offer you significant savings on your largest expense – fuel. Factoring clients often qualify for fuel discount cards to save money every time you visit the pumps.

• Factoring companies offer more than fast cash.
  In addition to fuel discount cards, established factoring companies are able to offer other perks like fuel advances, tire discounts, access to load boards and more! These pre-negotiated discounts and time-saving tools help you run your business more profitably and they don’t cost you anything. In fact, the discounts usually take care of the cost of factoring.
• Free credit checks on potential customers.
  When you work with a factoring company you have the ability to know up front if your customer is creditworthy before you take on a load. Some factoring companies even provide an online portal or mobile app for clients that can be used for credit checking potential new customers in seconds. You’ll never have to worry if you’ll get paid for your hard work.
• Put away the envelopes and submit invoices online.
  With an online portal, you can easily submit invoices to your factoring company online. Use your computer, tablet or smartphone and you don’t even have to leave the cab of your truck. And the best part is that you can send in your invoices 24/7, not just during business hours.
• Powerful billing and collections team.
  If you hate juggling unpaid invoices and hounding clients for payment, any good factoring company has got you covered. The factor takes over your billing and collections for you.
• Free up time so you can be more productive.
  You have more time to concentrate on your work now that you’ve offloaded your billing and collections to a factoring company. That means you have more time to haul loads and increase your revenue.
• Increased cash flow means an opportunity to grow.
  When you factor your invoices and create a consistent cash flow, you have the ability to take advantage of new business options as they arise. This opens up the chance to make more money.

What are the CONS of invoice factoring?

• Well, nothing in business is ever free.
  You know that it takes money to make money. Factoring your invoices costs money, although it’s a small price to pay to get your money in hours instead of days. Factoring eliminates the uncertainty of when you’ll get paid – allowing you to put your money back into your business.
• You may be liable if your customer doesn’t pay.
  If your customer fails to pay, or is late paying according to the terms, you may be on the hook for the invoice. Although, if you have a non-recourse arrangement, the factor will take the hit if the debtor fails to pay due to insolvency. This protection comes with a slightly higher rate because the factoring company is accepting the credit risk of your customers.

When it comes down to it, it’s easy to see how the pros of factoring far outweigh the cons. Get your invoices paid FAST with factoring, often in 24 hours. Use the money to buy fuel, cover expenses and fund growth.

If factoring sounds like it’s right for you, align yourself with a trusted partner like eCapital. We’ve been working in the transportation industry for more than 25 years, making us trusted experts in the field. By partnering with eCapital, you can keep your wheels turning instead of waiting around to get paid and you’ll get:

• A robust fuel discount program with credit terms to save thousands at the pump.
• An exclusive broker network where all high-paying loads are factorable.
• The best-in-class online portal and mobile app to help you run your business from anywhere, anytime.
• All of your billing and collections handled so you can focus on hauling your next load.
• A dedicated account rep. You’re more than just a number.
• And so much more!

eCapital Corp

eCapital Corp. is committed to supporting small and middle-market companies in the United States, Canada, and the UK by accelerating their access to capital through financial solutions like invoice factoring, factoring lines of credit, asset-based lending and equipment refinancing. Headquartered in Miami, Florida, eCapital is an innovative leader in providing flexible, customized cash flow to businesses. For more information about eCapital, visit eCapital.com.