All 44 of Your Freight Factoring Questions Answered

In the dynamic and fast-paced industry of freight and transportation, maintaining a steady cash flow is crucial for the success and growth of your business. Freight factoring, a financial strategy widely adopted by companies to stabilize cash flow, can sometimes appear complex and daunting.

This article aims to demystify the concept of freight factoring by providing clear, concise answers to all the common and not-so-common questions that freight company owners and operators have. Whether you are a seasoned business owner considering a new factoring service or a newcomer to the industry curious about how factoring can benefit your business, this guide will provide valuable insights.

We will explore the nuts and bolts of freight factoring, from its fundamental principles to the intricacies of contract terms, fees, and the selection process of a factoring company. Additionally, we will delve into the practical aspects, such as how factoring affects your relationships with customers, what happens if a customer fails to pay, and how freight factoring can be strategically used for business growth.

By the end of this article, you’ll have a clearer understanding of how freight factoring works and how it can be a powerful tool in managing your business finances. Whether you’re looking to alleviate short-term cash flow issues or seeking a long-term solution to finance growth, “All of Your Freight Factoring Questions Answered” is your go-to resource for making informed decisions in the world of freight and transportation finance. Let’s dive in and navigate the ins and outs of freight factoring together!

Freight Factoring Rates

What is the current freight factoring rate [in 2024]?

The current rates from any factoring company servicing the freight industry can vary depending on several factors such as industry, size, customer base, business model (long-haul, regional, local, etc.), transaction workload, and volume. However, in 2024, factoring rates typically range between 0.9% and 4.5% per invoice, and depending on the factor, this often includes A/R Management and Credit Protection services without additional charges.

Moreover, freight factoring companies consider several criteria to determine the rate, including risk, volume, time, and the advance rate. The factoring rate is calculated on the gross value of an invoice over a specified period, known as the recourse period. The total cost of a factoring agreement is a combination of the factoring rate and any additional fees. To learn more about factoring agreements, read our blog on Understanding Factoring Rates, Fees and the Total Cost of a Factoring Agreement

Click here to connect with an eCapital Factoring Consultant directly.

Are Factoring Rates Fixed or Variable?

Freight factoring rates can be either fixed or variable, depending on the terms of the factoring agreement. Here’s a breakdown of each type:

1. Fixed Factoring Rates [Flat-fee Factoring]: A fixed freight factoring rate is a one-time fee applied for the entire duration of the recourse period, which is usually 60 or 90 days. This means that regardless of when the customer pays the invoice within this period, the fee remains the same. Fixed rates are straightforward and easier to manage because they provide certainty about the cost of factoring an invoice.
2. Variable Factoring Rates: Variable rates change based on specific criteria. These rates are often structured in several ways:
   • Split Fee (Tiered) Factoring Rate: This type of rate is accrued in blocks of time (like every 10 or 15 days) and may be calculated on a monthly, weekly, or daily schedule. For instance, a factor might charge a certain percentage for the first 30 15 days, and then an additional percentage for each subsequent period until the invoice is paid.
   • Daily Fee Factoring Rate: This rate is calculated daily for each day the invoice remains outstanding. The cost of factoring increases the longer the invoice goes unpaid
   • Prime Plus Factoring Rate: This rate is also calculated daily and is based on the current prime lending rate plus a per annum rate. For example, a rate might be expressed as “prime + 3.5%.”

The choice between fixed and variable factoring rates depends on various factors like the nature of your business, the creditworthiness of your clients, the volume and value of invoices to be factored, and the typical payment schedules of your clients.

Businesses should carefully consider their specific needs and circumstances, including how quickly their customers typically pay their invoices, to determine which type of rate is most suitable for them. It’s also important to be aware of any additional fees that might be included in the factoring agreement, as these can affect the overall cost of factoring.

At eCapital, our Factoring Consultants will walk you through the best option for your business to get you the best rate and the lowest cost for your business.

Click here to connect with an eCapital Factoring Consultant directly.

Will eCapital match my freight factoring rate/offer?

Yes, within reason! It’s important to note that comparing freight factoring rates is almost never an apples-to-apples comparison. When considering a factoring company, it’s crucial to look for one that provides transparency, easy-to-understand rates, and, most importantly, no hidden fees. Often when a client is offered a below market factoring rate, you’ll see that the contract is laden with additional fees that regularly makes the total cost of factoring more expensive, even with the lower rate.

We encourage you to have an in-depth discussion about your specific needs with an eCapital Factoring Consultant to tailor a funding solution that’s right for you.

Can the freight factoring rate change?

Yes, your freight factoring rate can change, and this can happen due to several reasons—first and foremost, if your factoring agreement is on a variable rate structure. If you’ve signed on with a variable rate, a number of factors can increase or decrease your factoring rate over the terms of your contract, including: volume of invoices, creditworthiness of your customers, customer concentration, industry risk, etc. Here’s a breakdown of the common reasons for rate changed:

Volume of Invoices: Some factoring companies offer volume discounts. If the volume of your invoices increases or decreases significantly, this can impact the factoring rate. Higher volumes may lead to lower rates due to economies of scale, while lower volumes might increase the rate.

Creditworthiness of Your Clients: The factoring rate often depends on the creditworthiness of your clients. If the credit scores of your clients improve, the factoring company might offer a lower rate because the risk of non-payment is reduced. Conversely, if your clients’ creditworthiness deteriorates, the factoring company might increase the rate to offset the higher risk.

Your Company’s Financial Health: Changes in your company’s financial situation can also affect the factoring rate. Improvements in your financial stability or credit score might lead to better rates, whereas financial difficulties could result in higher rates.

Length of the Factoring Relationship: As your relationship with the factoring company matures and they become more familiar with your business and invoice patterns, they might offer more favorable rates.

Industry Risks: If the risk profile of your industry changes, this can affect your factoring rates. For instance, if your industry becomes more volatile or prone to payment delays, the factoring company might increase rates to compensate for the added risk.

Economic and Market Conditions: Broader economic and market conditions can impact factoring rates. For example, during an economic downturn, the risk of invoice non-payment generally increases, and factoring companies may raise rates to mitigate this risk.

Contractual Terms: Some factoring agreements may include clauses that allow the factoring company to adjust rates under certain conditions. It’s important to review your contract terms to understand when and how rates can change.

Competition and Market Rates: If the factoring industry becomes more competitive or if general market rates for factoring services change, your factoring company might adjust rates to stay competitive or in line with market trends.

Can a fixed freight factoring rate change?

Some factoring agreements may include clauses that allow the factoring company to adjust rates under certain conditions. It’s important to review your contract terms to understand when and how rates can change. At eCapital, we do our best to avoid changes to fixed freight factoring rates, however, there are two scenarios that may cause our team to increase or decrease a fixed factoring rate:

Industry Risks: If the risk profile of your industry changes, this can affect your factoring rates. For instance, if your industry becomes more volatile or prone to payment delays, we might increase rates to compensate for the added risk.

Economic and Market Conditions: Broader economic and market conditions can impact factoring rates. For example, during an economic downturn, the risk of invoice non-payment generally increases, and we may raise rates to mitigate this risk.

Costs & Fees of Freight Factoring

What are factoring fees?

Factoring fees can differ significantly from one company to another. It’s essential to be aware of not just the primary fee, which is a percentage that the factoring company retains from your invoices, but also other potential charges that might not be immediately apparent. These can include:

• ACH or Wire Fee: This is charged for transferring funds to your account.
• Application Fee: This fee can be either a flat rate or a percentage and varies widely among different companies.
• Invoice Processing Fee: A charge for processing your unpaid invoices.
• Closing Fee: An additional fee that the factoring company may deduct from the invoice amount.
• Monthly Minimum Fee: If your contract stipulates selling a specific portion of your invoices each month and you fail to meet this requirement, you might incur this fee.
• Early Termination Fee: Applicable if you wish to terminate a factoring agreement or long-term contract prematurely.

The accumulation of these fees over time can significantly impact the overall cost of factoring, making it crucial to inquire about all potential charges, including the average accounts receivable factoring rates, when evaluating factoring companies.

Are there additional fees in an eCapital factoring agreement that are not mentioned up front?

At eCapital, we pride ourselves on setting the industry standard of transparency, accountability, clarity and trust. Factoring rates and agreements can be complex—especially in today’s economy. We ensure we’re providing the clearest and most transparent explanation of our freight factoring offering so you’re not caught off guard by the total cost of your factoring agreement with us.

What are the costs or penalties with early termination for freight factoring?

Early termination of a freight factoring agreement can come with various costs or penalties, depending on the terms of the agreement you’ve signed with the factoring company. If you plan on terminating your factoring contract early, be on the lookout for termination fees, minimum volume fees, penalty or interest charges and rebate holdbacks. Here’s a breakdown:

Termination Fees: Many factoring agreements include a clause that requires you to pay a fee if you terminate the agreement before a certain period. This fee can be a fixed amount or a percentage of the total factoring volume agreed upon in the contract.

Minimum Volume Fees: If your agreement includes a minimum volume commitment and you terminate early, you might be liable to pay for the shortfall. For example, if you agreed to factor $100,000 worth of invoices per month but terminate the agreement six months into a one-year contract, you could be responsible for the fees on the unfactored amount.

Penalty Interest or Charges: Some agreements may include a clause for penalty interest or additional charges if the contract is terminated before its maturity. This is to compensate the factoring company for the anticipated revenue they lose due to early termination.

Administrative and Legal Costs: Terminating an agreement early might also involve administrative or legal costs. These could include the cost of handling the termination process, legal fees if any dispute arises, or costs associated with transferring the invoice processing back to your company.

Rebate Holdback: In some arrangements, the factoring company might hold back a certain portion of the rebate (the difference between the face value of the invoices and the amount advanced to you) until the end of the contract term. Early termination could lead to forfeiture of this amount.

Impact on Credit Score: If the termination involves disputes or unpaid fees, it could potentially impact your business’s credit score.

It’s crucial to read the terms and conditions of your factoring agreement carefully before signing and to understand the implications of early termination. At eCapital, we’ve simplified the early termination to be 1-5% of your account limit at the time of your early termination request.

Do factoring companies offer recourse or non-recourse freight factoring?

Recourse and non-recourse factoring are the two most popular types of freight factoring — each appeal to different businesses. Many factoring companies offer both recourse and non-recourse freight factoring.

At eCapital, we offer both recourse and non-recourse freight factoring; which offer is best for your business depends on a number of factors.

We encourage you to have an in-depth discussion about your specific needs with an eCapital Factoring Consultant to tailor a funding solution that’s right for you.

What are the monthly costs for freight factoring?

Freight Factoring Contracts & Agreements

What is the approval process for factoring and how long does it take?

Freight factoring often features a quicker approval process compared to traditional bank loans. While banks generally demand a comprehensive set of documentation, conduct thorough credit checks, and follow a lengthier timeline for approval, these steps can prolong the time it takes to access the necessary funds. In contrast, freight factoring typically streamlines this process, allowing for swifter financial assistance.

Freight factoring, unlike traditional loans, usually does not require hard collateral like property or equipment. Instead, the invoices themselves serve as the collateral.

By using your invoices as collateral, freight factoring provides a way to leverage your accounts receivable for immediate cash flow without the need for additional physical collateral. This can be particularly beneficial for businesses looking for quick access to funds without the complexities and risks associated with securing a loan against physical assets.

What does the account limit mean in my factoring account?

The account limit in your factoring account refers to the maximum amount of money the factoring company is willing to advance to you at any given time. This limit is a crucial aspect of a freight factoring arrangement and is determined based on various factors. The factoring company sets this limit based on their assessment of several factors, including the creditworthiness of your clients, your company’s financial history, the volume and consistency of your invoices, and the overall risk associated with your industry.

The account limit gives you an understanding of how much funding you can expect at any time, providing operational flexibility. It helps in planning cash flow, managing operations, and making strategic decisions.

It’s important to remember that factoring is not a loan; it’s an advance against your invoices. Therefore, the account limit is not a debt ceiling but a cap on the amount of invoice value that can be factored.

How is the account limit determined in my factoring account?

The factoring company sets this limit based on their assessment of several factors, including the creditworthiness of your clients, your company’s financial history, the volume and consistency of your invoices, and the overall risk associated with your industry.

We encourage you to have an in-depth discussion about your specific needs with an eCapital Factoring Consultant to tailor a funding solution that’s right for you. Your business demands a constant source of money. That’s why eCapital provides the best freight factoring in the industry with the most money, in more ways than anyone else. Plus, the lowest factoring rates and best service from experts who understand the needs of transportation companies.

How can I increase the account limit in my freight factoring account?

Make sure the account limit is reasonable compared to your current volumes, as many factoring companies inflate the account limits artificially as they’re trying to increase the early termination fee should there be one.

eCapital wants its clients to have the maximum account limit, we want you to grow and we don’t want to hold your business back. If you’re successful, then we’re successful. We automatically increase your account limit as needed to ensure lack of working capital is never a hindrance to your business.

What is the standard contract length for a freight factoring contract?

The standard contract length for a freight factoring contract can vary, but typically, these contracts range anywhere from 6 months to 2 years. The duration of the contract often depends on several factors, including the preferences of the trucking company and the policies of the factoring company. Here are some common durations and considerations:

Short-Term Contracts (1-6 months): Some freight factoring companies offer short-term contracts, often ranging from 1 to 6 months.

One-Year Contracts: A one-year contract is quite common in the industry. It provides a balance between commitment and flexibility, allowing both parties to reassess the relationship and terms annually.

Long-Term Contracts (2+ years): Long-term contracts,are typically 2+ years, might be available, especially for companies with a stable and predictable volume of freight bills. These contracts can sometimes offer better rates due to the security they provide to the factoring company.

Automatic Renewal Clauses: A majority of contracts include an automatic renewal clause, where the contract renews for a specified period, usually of equal length the original term,unless either party gives notice of termination before the renewal date.

Customizable Terms: Some factoring companies are open to negotiating contract terms, including the length, to suit the specific needs of the freight company.

Early Termination Clauses: .  Much like traditional lenders, most factoring companies include an Early Termination Fee (ETF) in their contract

Flexibility and Scalability: The nature of the trucking and freight industry often requires flexibility and scalability, so some factoring companies may offer more adaptable contract terms to accommodate this.

It’s important to carefully review and understand the terms and conditions of any freight factoring contract before signing. We encourage you to have an in-depth discussion about your specific needs with an eCapital Factoring Consultant to tailor a funding solution that’s right for you.

If I’d like to leave a factoring company, how do I get out of the factoring contract?

Exiting a factoring contract can be a sensitive and potentially complex process, depending on the terms of your agreement and the policies of the factoring company. Here’s the standard process of existing a factoring contract:

1. Fulfill Contractual Obligations: If your contract has a fixed term, consider waiting until the end of this period to avoid early termination fees. Ensure that you have fulfilled all other obligations, such as factoring a minimum volume of invoices if required.
2. Notice Period: Most factoring agreements require you to provide notice before termination – typically 30 to 90 days. Ensure you adhere to this notice period as specified in your contract.
3. Communicate with the Factoring Company: Reach out to your contact at the factoring company. Explain your reasons for wanting to terminate the contract. Sometimes, if the reasons are based on service issues, the factoring company might offer solutions to retain your business.
4. Settle Outstanding Balances: Ensure that all outstanding invoices have been paid and that you have settled any balances with the factoring company. This may include repaying any advances on invoices that have not yet been paid by your customers.
5. Get a Release Letter: Once all obligations are fulfilled, ask for a release letter from the factoring company. This document should state that you have fulfilled all contractual obligations and that the factoring company has no further claim on your invoices or receivables.

At eCapital, while we value each and every client and pride ourselves on growing with your business, we’ve made it simple to exit your eCapital factoring contract if you wish to do so. If you wish to exit your factoring contract, we ask that you give us 60 days notice prior to your 12 month anniversary date and from there we’ll work on what’s required to close your account.

What is the advance rate for freight factoring?

The advance rate in freight factoring refers to the percentage of the invoice value that the factoring company will provide to you upfront when you sell your invoices to them, less the factoring fee. This rate can vary depending on several factors, including the industry, the creditworthiness of your clients, and the terms agreed upon with the factoring company.

At eCapital, our advance rates for the transportation industry are most often 100% with the exceptions of the following business types: Box Trucks, Hotshot and Sprinter Vans, and product that best suits your needs.

Here are some general points about advance rates in freight factoring:

Typical Range: Advance rates typically range between 70% to 95% of the invoice value. This means if you have an invoice worth $10,000, a factoring company may advance you $7,000 to $9,500 upon factoring that invoice.

Industry Specifics: Some industries might have standard advance rates. For example, industries with higher risk might see lower advance rates, while industries with quick-turnaround invoices (like transportation or staffing) might see higher advance rates.

Client Creditworthiness: The better the credit score and payment history of your clients, the higher the advance rate you might receive. Factoring companies assess the risk of delayed or non-payment before deciding on the rate.

Reserve Account: The remainder of the invoice amount not advanced to you (e.g., 10-30%) is held in a reserve account. Once your client pays the invoice in full, the factoring company releases the balance to you, minus their fees.

With freight factoring, do I have to factor everything?

No, with freight factoring, you generally do not have to factor every invoice. Most factoring companies offer flexibility in terms of which invoices you choose to factor. However, the specifics can vary based on the factoring company and the terms of your agreement.

At eCapital, depending on your debtor list, size, risk, fee structure, etc., you can choose which customers you want to factor and which customers you don’t want to factor. Once you have chosen the customers you would like to factor, you are obligated to factor 100% of that customers invoices.

Do factoring companies buy invoices from every one of my customers?

Factoring companies typically do not require you to factor invoices from every one of your customers. They usually offer flexibility, allowing you to choose which customer invoices you want to factor. This approach is known as selective freight factoring.

At eCapital, depending on your debtor list, size, risk, etc., you can choose which customers you want to factor and which customers you don’t want to factor.

Do you have credit for my customers?

At eCapital, we have an extensive database of over 40,000 brokers and shippers in the transportation industry in a platform we call our Credit Search Tool. Every eCapital client has access to this database when they sign on with eCapital—a major business advantage for our transportation clients.

Can I factor more with my customer if I grow?

If your factoring company is confident in your customer (debtors) base, additional credit can be applied in order to assist with the required growth.

With freight factoring, can I choose which invoices to factor?

At eCapital, depending on your debtor list, size, risk, fee structure, etc., you can choose which customers you want to factor and which customers you don’t want to factor. With that said, you are unable to choose which invoices from a single customer you’d like to factor. This is called spot factoring, which is not available at eCapital.

When do factoring companies start collecting from my customer(s)?

Factoring companies typically start collecting from your customers as soon as they take on your invoices. At eCapital, the collection process begins as soon as the first invoice(s) becomes due, based on the terms you’ve agreed upon with your customer (e.g., Net 30, Net 60 days). Here’s how the process generally works:

Invoice Submission and Verification: After you submit your invoices to the factoring company, they will usually verify them for accuracy. This involves confirming that the goods or services have been delivered or completed as agreed, and the invoice is due for payment.

Advance Payment to You: Once the invoices are verified, the factoring company will advance you a percentage of the invoice value (based on your agreed-upon advance rate). This typically happens within a few days of submitting the invoice.

Notification to Your Customers: The factoring company will notify your customers that the invoice has been assigned and that payments should be made directly to them. This is usually done through a notice of assignment, which can be included with the invoice or sent separately.

Payment Collection: The factoring company assumes the responsibility of collecting payment from your customers. The collection process begins as soon as the invoice becomes due, based on the terms you’ve agreed upon with your customer (e.g., Net 30, Net 60 days).

Payment Terms: The timing of the collection efforts is determined by the payment terms of the invoice. If an invoice is on a Net 30 term, the factoring company will expect payment from your customer 30 days after the invoice date.

Customer Relationship: The factoring company typically handles the collection process professionally, as they understand the importance of maintaining good customer relationships. However, it’s a good idea to inform your customers in advance about the factoring arrangement to avoid any confusion or issues.

Receiving the Balance: Once your customer pays the invoice, the factoring company will release the remaining balance to you if they are holding a reserve minus their fees.

What happens to my invoices, if my customer doesn’t pay the factoring company?

If your customer fails to pay the factoring company, the consequences depend on the type of factoring agreement you have with the factoring company. There are two main types of factoring: recourse and non-recourse:

Recourse Factoring: In a recourse factoring agreement, you are ultimately responsible for the payment of the invoice. If your customer doesn’t pay the factoring company, the company will expect you to buy back the unpaid invoices or replace them with other invoices. This is more common and typically offers lower fees, as the factoring company takes on less risk.

Non-Recourse Factoring: In a non-recourse factoring agreement, the factoring company assumes the risk of non-payment by your customer. If your customer doesn’t pay due to insolvency or bankruptcy, the factoring company absorbs the loss. However, non-recourse factoring does not cover disputes over the product or service quality. Also, the fees for non-recourse factoring are typically higher due to the increased risk for the factoring company.

In both cases, the factoring company may take steps to collect the debt from your customer. This can include legal action or working out a payment plan with the customer.

We encourage you to have an in-depth discussion about your specific needs with an eCapital Factoring Consultant to determine which type of factoring will be best for your business.

Getting Paid with Freight Factoring

How quickly do factoring companies pay?

After invoice verification, most factoring companies advance funds quite quickly. It’s common for businesses to receive the advance within 24 to 48 hours after the invoices have been verified and approved.

At eCapital, you get access to your funds almost  instantly, once your invoice(s) has been verified.

Do factoring companies offer same day funding?

After invoice verification, most factoring companies advance funds quite quickly. It’s common for businesses to receive the advance within 24 to 48 hours after the invoices have been verified and approved.

At eCapital, you get access to your funds almost  instantly (same day) once your invoice(s) has been verified.

What is the cutoff time for freight factoring with same-day funding?

The cutoff time for submitting invoices for same-day funding in freight factoring typically varies from one factoring company to another. However, most companies that offer same-day funding services usually have a cutoff time set during the business day, often in the early to mid-afternoon.

It’s important to review and understand the terms of service with your factoring company, as these can significantly impact how quickly you receive payment. Additionally, maintaining good communication and a solid relationship with your factoring company can often help in expediting the funding process.

Can I get funding from factoring companies on the weekend?

Most factoring companies operate on standard business days, which typically exclude weekends and public holidays. However, some modern factoring companies, especially those with more digitalized services like eCapital, offer limited operations, such as load advance requests and the ability to self-direct funds over the weekend.

At eCapital, we know the importance of being able to keep your business moving on the weekends, so we’ve introduced modern digitalized services to put yourself in the drivers’ seat 24/7.

What is a freight invoice?

A freight invoice is a document the load recipient signs when you deliver a load at its basic level. Upon signing, the freight carrier or owner-operator confirms that the load has been accepted and will be paid. In reality, receiving a freight payment can take anywhere from a week, if you’re lucky, up to several months after the paper is signed. Despite this, you still have a business to run, and you cannot afford to wait sixty or ninety days for that load you just delivered. You still have bills to pay, fuel to deliver your next shipment, and food to eat.

Getting Started with a Factoring Company

How do I send out a Notice of Assignment (NOA)?

A Notice of Assignment (NOA) is an important document in the factoring process, as it informs your customers that a factoring company has purchased your invoices and will be collecting the payments directly. The purpose of the NOA is to ensure that payments are made directly to the factoring company without confusion or delay, so clarity and proper communication are key.

At eCapital, we take care of this entire process for you, so you can spend less time focusing on invoices and more time pushing your business forward.

How long is the setup/approval process for freight factoring with a factoring company?

The setup and approval process for freight factoring with a factoring company can vary depending on several factors, including the factoring company’s policies, the complexity of your business, and the quality of your invoices and customers. At eCapital, with your help, we strive to have your account running in as little as 48 hours. Here’s a general outline of what you can expect in terms of timeline:

Application Submission: Initially, you’ll need to submit an application to the factoring company. This application usually includes details about your business, financial statements, and information about your customers and invoices.

Documentation and Review: After submission, the factoring company will review your application. This process typically involves a review of your business’s creditworthiness, the credit history of your customers, and the legitimacy of your outstanding invoices. You may be required to provide additional documentation during this phase.

Approval Time: The approval time can range significantly. Some factoring companies can approve your application within a few days, especially if they operate with more automated or streamlined processes. However, more traditional factoring companies, or situations requiring a detailed review of complex invoices or credit situations, might take a week or longer.

Setting up the Account and Funding: Once approved, there’s usually a setup phase for your account. This setup includes the creation of your factoring account, establishing a method for invoice submission, and setting up the payment process. If everything goes smoothly, the entire setup and approval process – from application to the first funding – can sometimes be completed within a week or two.

Communication and Cooperation: The speed of this process can often depend on how quickly and efficiently you can provide the necessary information and documentation to the factoring company. Good communication and cooperation can expedite the process.

Factors That Can Affect Timelines: The complexity of your business, the volume of invoices, industry-specific factors, and any legal or compliance issues that need to be addressed can all affect the timeline.

To get a more accurate estimate of the timeline, it’s best to speak directly with an eCapital Factoring Consultant. We can provide you with more precise information based on their specific processes and your circumstances.

Do factoring companies check personal credit scores?

To get freight factoring, the credit score required can vary depending on the factoring company and the specific circumstances of the business seeking the service. Typically, freight factoring companies are more concerned with the creditworthiness of your customers (the ones who owe you money) rather than your personal or business credit score. This is because the factor collects payments from your customers, not you.

At eCapital, regardless of what your credit score is, we have a solution that’s tailored for you. We encourage you to have an in-depth discussion about your specific needs with an eCapital Factoring Consultant to customize a funding solution that’s right for your business.

What is the buyout process for freight factoring with a factoring company?

Exiting a factoring contract can be a sensitive and potentially complex process, depending on the terms of your agreement and the policies of the factoring company. Here’s the standard process of existing a factoring contract:

1. Fulfill Contractual Obligations: If your contract has a fixed term, consider waiting until the end of this period to avoid early termination fees. Ensure that you have fulfilled all other obligations, such as factoring a minimum volume of invoices if required.
2. Notice Period: Most factoring agreements require you to provide notice before termination – typically 30 to 90 days. Ensure you adhere to this notice period as specified in your contract.
3. Communicate with the Factoring Company: Reach out to your contact at the factoring company. Explain your reasons for wanting to terminate the contract. Sometimes, if the reasons are based on service issues, the factoring company might offer solutions to retain your business.
4. Settle Outstanding Balances: Ensure that all outstanding invoices have been paid and that you have settled any balances with the factoring company. This may include repaying any advances on invoices that have not yet been paid by your customers.
5. Get a Release Letter: Once all obligations are fulfilled, ask for a release letter from the factoring company. This document should state that you have fulfilled all contractual obligations and that the factoring company has no further claim on your invoices or receivables.

What’s the process of switching factoring companies?

The process of switching from one factoring company to another involves several steps and coordination between multiple parties from application and approval with the new factoring company to exiting your existing factor, and finally first funding with your new factoring company.

Application and Approval with New Company:

After selecting a new factoring company, you’ll need to go through their application process. This usually involves submitting financial information, details about your invoices, and information about your customers. The new company will conduct its due diligence before approving your application.

Notification to Current Factoring Company:

You must inform your current factoring company of your decision to switch. This process can be straightforward or complicated, depending on your contract terms with them.

Settlement of Outstanding Transactions:

Any outstanding invoices with your current factoring company need to be settled. This means waiting for your clients to pay off these invoices unless you choose to pay them off yourself.

Transfer of Collateral or Accounts:

If your previous arrangement involved specific collateral or accounts, these may need to be transferred or released by your current factoring company before the new one can take over.

Finalizing Agreement with New Factoring Company:

Finalize the agreement with your new factoring company. This will involve signing a new factoring agreement and setting up any necessary accounts or processes.

Start Factoring with New Company:

Once everything is settled with both the old and new factoring companies, you can start factoring your invoices with the new company.

The total time to switch factoring companies can vary greatly depending on several factors, such as the speed at which your customers pay off outstanding invoices, the efficiency of both factoring companies in processing your transition, and the specifics of your agreements with them. It’s advisable to plan for a transition period where there might be some overlap or a gap in your factoring services. It’s also crucial to thoroughly understand any termination clauses or fees in your contract with your current factoring company to avoid unexpected costs.

If you’re planning on switching factoring companies, we encourage you to have an in-depth discussion about your specific needs with an eCapital Factoring Consultant to get the process of switching underway as soon as possible.

General Freight Factoring Questions

What does factoring a load mean?

In simple terms, factoring a load is a financial transaction that allows owner operators, fleet owners and brokers to turn invoices from delivered loads into immediate cash. Invoice factoring unlocks money you’ve already earned and pays you within 24 hours, so you can put the funds to use right away. No more turning down loads or struggling to cover expenses. Transportation businesses turn to eCapital to simplify every step of getting paid, so you can focus on what is needed to run a better trucking business.

Why would a company want to use freight factoring?

Freight factoring is an immediate source of cash. Most transportation companies can’t afford to wait 30, 60 or 90 days to get paid. They need consistent cash flow to meet immediate financial demands. Freight factoring provides quick, affordable cash and eliminates the hassle of trying to collect from customers on your own. Many transportation companies use the fast access to their cash to grow their fleet or fund their next job. It can be more advantageous to use freight factoring than securing a bank’s business loan to invest in company growth.

How much does freight factoring cost?

The cost of freight factoring can vary depending on several factors, including the factoring company, the volume of invoices you’re factoring, the creditworthiness of your customers, and the specific terms of your agreement. Generally, the cost is structured as a percentage of the invoice value. Typically, freight factoring costs just a few cents on the dollar. Keep in mind, freight factoring is not a loan; you’re just getting access to your money faster for a small fee.

Here’s a basic criteria we use to calculate the rate:

• Total dollar volume you factor each month
• Average invoice amount
• How long it takes your customers to pay
• Diversity of your customer base

The factoring company pays the invoice and gives you the money, minus a small percentage. And, the more you factor, the lower the percentage will be. eCapital’s freight invoice factoring rates are competitive and many companies find factoring often pays for itself because they can put the cash to work for their business faster than if they wait to get paid.

Are there any other benefits to working with a freight factoring company?

Yes! Besides getting paid fast (often within 24 hours), there are tons of other benefits to working with eCapital. For one, we handle your accounts receivables so you don’t have to. We also have a portal and free mobile app where you can submit invoices for funding, credit check customers, track load status, view funding summary and so much more.

Using eCapital’s factoring services means that you’re eligible for these discounts and benefits:

• New Fuel Discount Program with credit terms.
• Exclusive Broker Network with high-paying loads.
• Discounts on basically everything you’ll need to succeed in the trucking industry.

What will my clients think if I use freight factoring?

The perception of your clients towards your use of freight factoring can vary, but in most cases, it is either neutral or positive, especially if managed effectively. Here are some key points on how clients might perceive freight factoring and how you can maintain a positive relationship with them:

Professional and Established Practice: Freight factoring is a well-established and widely accepted practice in the logistics and transportation industry. Many clients are familiar with it and understand that it’s a common financial tool used for cash flow management.

Business Growth and Stability: Clients may view your use of freight factoring as a sign of proactive financial management. It demonstrates that you’re taking steps to ensure steady cash flow, which can be reassuring as it suggests stability and the potential for long-term business growth.

Operational Efficiency: Factoring can provide you with the necessary funds to maintain or improve operational efficiency. This can lead to better service for your clients, such as on-time deliveries and consistent quality of service, which they are likely to view positively.

Transparency is Key: Being transparent with your clients about using freight factoring can help maintain trust. You can explain that factoring is a financial decision to bolster cash flow and does not affect the quality of service they will receive.

Concerns About Financial Health: Some clients might initially perceive factoring as a sign that your business is in financial distress. It’s important to address such misconceptions proactively by explaining that factoring is a strategic tool for managing cash flow and not a last resort for troubled companies.

Minimal Impact on Client Relationships: Since factoring primarily affects the back-end financial processes of your business, it often has minimal, if any, impact on your clients. In many cases, they continue to receive the same level of service without any disruption.

Customer Service Approach: The approach of your factoring company in dealing with your clients can also affect their perception. Choose a factoring company that is known for handling collections professionally and respectfully to ensure your clients’ experiences remain positive.

Improving Your Offerings: The improved cash flow from factoring can allow you to invest in bettering your services, which can positively impact your clients. This might include investing in newer technology, better equipment, or expanding your services.

In summary, while there might be some concerns or misconceptions about freight factoring, most clients understand it as a legitimate and practical financial strategy. Your approach to communication and the professional handling of the factoring process will play a significant role in maintaining and even improving client perceptions.

Why should I check my customer’s credit before hauling a load?

You work too hard to wait over 30 days to get paid for a delivered load, or worse, not get paid at all. Every time you take on a load, you are extending credit to that customer. To minimize the potential financial risk, it makes sense to perform an initial credit check on new customers and ongoing credit checks on existing customers. You can verify if the broker or shipper is credit worthy in just a few steps when you use eCapital Credit Checking in the portal and mobile app so you can accept the load with confidence.

Why do I need non-recourse factoring if my customer is credit approved?

Just like never driving without your insurance, you shouldn’t factor without it either. Credit scores and credit worthiness can change by the week so it makes sense to protect yourself and your trucking company. Non-recourse factoring allows you to avoid unnecessary losses should your debtor become insolvent.

Do I need to sign a contract to start freight factoring?

Yes, typically, to start with freight factoring, you will need to sign a contract with the factoring company. This contract serves as a formal agreement outlining the terms, conditions, fees, and other important details of the factoring arrangement. Before signing a freight factoring contract, it’s important to read and understand all its terms. Don’t hesitate to ask questions or seek clarification on any points that are not clear. Remember, the terms of the contract can often be negotiated, so discuss your specific needs and concerns with the factoring company to reach a mutually beneficial agreement.

We encourage you to have an in-depth discussion about your specific needs with an eCapital Factoring Consultant to tailor a funding solution that’s right for you.