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Freight Invoice Factoring 101: Solving Your Cash Flow Problem

By 09.21.22September 22nd, 2022No Comments
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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.

Businesses in the trucking industry often turn to factoring companies for an immediate source of cash. In the transportation industry, waiting weeks or even months to get paid is standard (ouch!)–most trucking companies can’t afford to wait that long. Freight factoring provides quick, affordable cash and eliminates the hassle of trying to collect from customers on your own.

What is Freight Factoring for Trucking in 2022?

In simple terms, freight factoring is a financial transaction that turns your freight invoices into immediate cash. It is a widely accepted method that eliminates the wait and worry of getting paid. Freight factoring unlocks the money your freight business has already earned so you can use the funds immediately.

Freight factoring is a way for truckers to receive significantly faster payment for their services. In contrast, the factoring company deals with invoice payment processing and collection. In exchange for this service, the trucking company gives up a small percentage of the amount they were owed to the factor–a small price to pay in exchange for keeping their wheels turning and their business running smoothly.

What Service Does a Factoring Company Provide for Truckers?

Factoring companies exist in the transportation industry to close the gap between delivering a load and getting paid. You never know when a broker or shipper will pay; sometimes, you may have to wait a long time for payment–and time is something you don’t have in trucking. Factoring eliminates the uncertainty, putting cash in your hands in hours, not weeks.

Usually, a factoring company will pay you nearly, if not all, the total earnings of the load within a few days. After that, the invoice is off your hands, and you can run your trucking business with the funds in your account. At the same time, the factoring company deals with collecting.

Is Freight Factoring Expensive for Trucking Companies?

The first question you might be asking yourself is how much it costs. Determining your factoring fee is relatively straightforward. All factoring companies use a few essential criteria to calculate the rate:

  • Total dollar volume you factor each month
  • Average invoice amount
  • Collection period
  • Diversity base of your customers (referred to as “concentrations”)
  • Type of freight

Based on these criteria, rates are typically 2% – 6% of the amount invoiced. The benefits of receiving immediate cash typically far outweigh the fee.

For a deeper dive into what determines your factoring rate, visit our blog on Understanding Rates, Fees, and the Total Cost of a Factoring Agreement.

Here is a Breakdown of the Freight Factoring Process:

1. Deliver the Load.

You pick up the freight, deliver it, and get your paperwork signed.

2. Send Over The Paperwork.

Submit the invoice, rate confirmation, and bill of lading to the factor which verifies load delivery. The factor then knows there are no freight claims or issues preventing payment.

3. Get Paid.

Factors advance you up to 100% of the invoice’s value within 24 hours by purchasing your invoice. It is usually deposited directly into your bank account. Or, if you prefer, it can be applied to your fuel card.

Some leading factoring companies provide an online portal and mobile app. You can easily submit your paperwork with a laptop computer, tablet, or smartphone from the cab of your truck before you even pull away from the dock. You’re going down the road knowing you’ll have money in the bank within a day. It doesn’t get any easier!

And Here’s a Typical Freight Factoring Scenario:

You submit your invoices totaling $1,500.

With an example factoring rate of 2%, your cost to have money immediately is $30. You would get $1,470 in 24 hours or less.

Cash flow is king in the trucking business. You can hire new drivers, upgrade equipment, and cover operating expenses. Instant access to cash means you have the working capital to invest in your business.

Benefits of Freight Factoring for Owner-Operators

Even though owner-operators make three times more than over-the-road (OTR) company drivers, factoring provides constant funds, and healthy cash flow owners need to run their successful businesses. Here are some of the many benefits partnering with a factoring company can provide to your trucking business:

Generate Cash Flow Immediately.

Factoring turns unpaid invoices on delivered loads into cash without waiting.

When you submit your freight bills to your factor, those unpaid invoices are converted to cash within 24 hours. You have your expenses covered and are free to haul more loads for those good customers.

No Debt is Created.

Factoring your invoices is not borrowing. It’s the process of selling your unpaid invoices to the factor at a discount, and your factor pays you the same day. Then the factor waits for payment from your customer. You have no debt from the transaction. It’s your money; you’re just getting paid faster.

Access to Free Credit Checks on Clients.

In trucking, there are times when you must work with unfamiliar clients. You don’t know how solid they are. Factoring gives you free credit checks on potential customers, so you always know if a load is likely to get paid. It’s good business and a great stress reliever.

Gain Access To A Team Of Billing And Collection Experts.

All you need to do is submit your invoices to your factor, then keep trucking: no accounts receivable to juggle and no waiting for payments. You get immediate cash, and your factoring team of experts handles all your billing and collection needs. You get to drive more. Worry less.

Increased Productivity.

Factoring gives you consistent cash flow. You have your expenses covered and can carry more loads. As a result, you’re enjoying increased revenue. You’re saving time and using it to grow your company.

Fuel Advances.

Some factoring companies offer fuel advances as part of their factoring program. They will advance you the cash you need to pay for fuel before you deliver your load.

Save On Fuel.

A good factoring company will offer a robust fuel card program featuring significant discounts on the cost of fuel at thousands of service stations nationwide. The best factoring companies ensure improved cash flow with credit terms to delay fuel payments and cash advance options for over-the-road expenses. Ensure the fuel card program provides easy control, security, and transparency of your account via a user-friendly fuel management portal.

Improve your Credit.

Due to factoring, many of our clients have improved their credit rating by avoiding debt while being able to pay their bills on time.

Simple, Fast Approval Process.

Getting approved for freight factoring is no sweat compared to applying for a loan or line of credit. No collateral is required, and your credit score is not essential. Factoring is approved based on the creditworthiness of your customers. You get to enjoy a quick and easy application process.

Do I Need a Factoring Company To Be a Successful Owner-Operator?

Ultimately, factoring is a significant quality-of-life upgrade for a small price. Most owner-operators successfully use factoring as a business function of their trucking company. You can run your trucking business sufficiently without the services of a factoring company. Still, you’ll have to plan for the lengthy wait times to get paid by your customers, which can be devastating to business cash flows for most start-up trucking companies.

To learn more about Freight Factoring for Owner-Operators, click here.

Benefits of Freight Factoring for Fleets

Small and large fleet owners enjoy the same benefits as owner operators above, plus:

Predictable Cash Flow Makes It Easier To Expand Your Business.

When your fleet is firing on all cylinders, and cash flow is steady, it’s time to think about adding equipment and running more lanes. Factoring eases your cash flow pain and turns it into new business and more revenue.

Help Ensure Drivers Are Paid On Time.

Factoring provides consistent cash flow to help pay drivers regularly. When drivers fail to get paid when due, their company loyalty, and productivity fades fast. Now they are happy, and that makes you happy.

Keep All Trucks On The Road.

Instant cash means you have the working capital to take care of truck maintenance and repair services. It keeps your trucks running perfectly to reduce downtime and lower overall maintenance costs.

Provides Flexibility To Offer New Incentives To Retain And Attract Drivers.

Finding and retaining qualified drivers will determine the health and success of your trucking company. Use the boost in cash flow from invoice factoring to create an attractive incentive package that makes security, loyalty, and respect.

To learn more about Freight Factoring for Fleets, click here.

Benefits of Freight Factoring for Freight Brokers

Brokers must manage customers, carriers, routes, weather conditions, deadlines, and sales. Brokers can have some of the same benefits as owner operators and fleet owners with invoice factoring, plus:

Carrier Payment Services.

Some factoring companies handle all your carrier payment processing, freeing you up to invest in your business and secure more contracts. Submit your invoices, and they’ll automatically fund your carriers with whatever payment terms they choose.

Access To Expert Billing And Collection Team.

Your factoring company takes over your billing and collections. You save time and money, so you can focus on running a profitable business.

Quick Pay To Carriers.

You can retain the most qualified carriers by offering competitive quick pay options.

Increase Working Cash Without Incurring More Debt.

By factoring, you get the cash flow you need to pay carriers and build a cash reserve to support the growth of your business without taking on additional debt. Factoring is not lending.

Advances For Carriers.

Good factoring companies will provide fuel advances against invoices before the loads are delivered. It’s another value-added service you can offer your carriers. Great for keeping your carriers working and driving your business.

Fuel Cards For Carriers.

Through your factoring company, you can offer your carriers fuel cards to save them thousands per truck each year at the pumps—an excellent business-building tool for you and them.

Flexible Payment Options.

Because you and your carriers are being paid quickly, you can extend favorable payment terms to good customers. You become important to those customers and drive more business for yourself through more and better loads.

To learn more about Freight Factoring for Freight Brokers, click here.

How Do You Qualify for Freight Factoring?

It’s effortless to get approved for freight invoice factoring. You provide information about your customers, and the factoring company checks the creditworthiness of those customers. That’s how factoring companies assess their risk.

To qualify, your transportation company must:

  • Be a carrier or freight broker,
  • Have all the proper documentation, authorities, licenses, and insurance,
  • Work with creditworthy clients,
  • And have freight bills that are free of liens.

That’s it. It’s that simple.

As you can see, freight factoring is a great solution to help trucking companies overcome gaps in their cash flow. Get your invoices paid in 24 hours. Use the money to buy fuel, get more loads, cover expenses, and fuel growth.

Whether you are an owner-operator, fleet owner, or freight broker, there are many benefits to enjoy by using freight invoice factoring. It truly is a more innovative way to do business.

Getting started is a simple process – you contact us to get started, and from there, you’ll need to fill out a short application and provide some basic information. Then, our internal team goes to work to get you all set up in a couple of days!

eCapital Logo

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 financing. 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.


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