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How to Qualify for Freight Factoring

Last Modified : Jan 23, 2024

Fact-checked by: Bruce Sayer

If you own a trucking company there are a number of issues that continuously occupies your mind – ensuring readily available access to working capital is one of the most common of these concerns. With the constantly changing state of the industry, trucking experiences periods of tight capacity with profitable rates often followed by low demand and crushingly low freight rates before it ticks up again. This cycle repeats, making trucking one of the more volatile industries and extremely difficult to maintain financial stability. No matter whether the industry is in a boom period or a bust, having the financial backing to keep trucks moving is always a pressing need. Freight factoring is a mainstream financial strategy commonly used by trucking companies in all stages of development. The two main features that continues to increase its usage as a preferred funding option is fast, reliable access to working capital and easy qualification.

How easy is it to qualify for freight factoring?

If you own a trucking company and serve creditworthy customers, qualifying for freight factoring is beyond easy – it’s fast and simple. This is because the credit decision to fund your company is not based on the financial history and current standing of your company but rather, it is based on the credit strength of your customers. No matter if you have a startup company with just one truck or an established fleet needing to restructure financing, freight factoring is designed to meet the capital requirements your business needs.

Freight factoring is the practice of selling invoice receivables at a discount in exchange for immediate cash. If you deliver freight and issue invoices to customers that have good credit standing, then your trucking company is constantly generating valuable assets (invoices) that can be leveraged for fast cash. To convert invoices to cash, partner with a reputable freight factoring company that knows how your business works and is familiar with industry debtors (your customers). With extensive databases and advance technology, these factoring specialists are able to receive, review, approve the application and process first funding within a few days.

How to qualify?

Qualification for factoring is much, much simpler and faster than applying for a traditional bank loan. To ensure the most expedient funding process and to make sure your transactions are reliable, accurate and transparent, be sure to engage an invoice factoring company that specializes in trucking.

Some factoring companies serve multiple markets, spreading their resources across vast customer needs and varying industry requirements. These factoring companies are less familiar with the unique issues of the trucking industry and require lots of paperwork and lots of time to complete due diligence.

Freight factoring companies specialize in transportation. These industry specialists create an enhanced client experience by maximizing convenience with easy to manage services. This includes simple qualification requirements with minimal supporting documentation needed to complete the process. For fast funding look for a factoring company that requires minimal credentials in the application process and has the infrastructure to process credit searches, UCC filings and legal documents quickly and easily.

A good factoring company will have a simple online form to get started and be able to process an application and approve funding in just two days once the client provides:

  • Copy of Articles of Incorporation
  • Two pieces of ID including driver’s license
  • Carrier Package

Steps to First Funding

As soon as a client is qualified, funding can begin. The following is a step-by-step guide to first funding:

  1. Notifying the trucking company’s customers of the factoring arrangement. Once a client starts factoring, they will need to notify their customers of the invoice assignment and that all payments need to go to the factoring company. Most trucking customers are familiar with invoice factoring and probably deal with other carriers and brokers who also use factoring to expedite payment. These customers may even appreciate interfacing with the efficient work practices and systems of professional freight factoring companies to improve accounts receivable management.
  2. Invoicing and documentation submission. Once the freight has been delivered, invoice the customer and send a copy of the invoice, rate confirmation and bill of lading to the factoring company.
  3. Invoice verification. Before the factoring company can provide funding on a submitted invoice, they need to verify that the load has been delivered. A good factoring company will do this in a professional manner, protecting the integrity of the client and expediting the verification process.
  4. Receive funding on approved invoices. Once the factoring company approves an invoice, the funds will be advanced to the client’s bank account. The advance rates associated with freight factoring are typically high, usually ranging up to 95% of the value of the invoice. This amount (minus a small fee) is usually deposited the same day as the invoice is verified. The remaining percentage is held as a reserve until the customer pays the invoice full amount to the factoring company.
  5. Final remittance. Once the invoice is paid by the customer, the factoring company will release the reserve amount and deposit it directly into the trucking company’s bank account.
  6. Deliver load, invoice customer, repeat. This process (steps 2-5) repeats with each invoice that is submitted to the factoring company ensuring steady, reliable funding. The more invoices you generate, the more funding becomes available. Freight factoring is the ideal funding solution to support operations and fuel growth.

What is Non-Recourse Factoring?

Another option to consider when shopping for invoice factoring is non-recourse factoring. Unlike traditional factoring, in non-recourse factoring, the factor assumes the risk of non-payment by the original debtor. If the debtor doesn’t pay the invoice, the business is not required to repay the factor. This method allows businesses to obtain immediate liquidity without the liability of potential non-payment by their customers. Not all companies that offer non-recourse factoring cover the same liabilities. You can find some things to look out for in our blog Top 11 Things to Understand Before Signing A Non-Recourse Factoring Agreement.

Why choose freight factoring instead of bank financing?

The simple answer is that banks are no longer interested in lending funds to trucking companies. In fact, banks are no longer interested in lending funds to any small or medium-sized business in any industry. This credit crunch is part of a larger trend as the commercial banking system continues to withdraw from what they consider to be low profit, high-risk lending to small and mid-level enterprises. Instead, banks favor the stability of larger corporations that provide steady financial performance month after month. For bankers, these corporations represent lower credit risk and less work to manage the larger accounts. Less work equates to higher profits and lower risk equates to reduced bad debt.

As the banks move away from small business lending, alternative lending options are filling the gap. For trucking companies in need of working capital, a simple comparison of bank loans vs freight factoring reveals the advantages of this alternative lending solution. Freight factoring companies understand the challenges and barriers that hinder trucking operations and limit company growth. To meet these challenges, freight factoring companies utilize advance technologies and delve into vast databases to manage the flow of information. It is this heightened ability to access, monitor and analyze financial data rapidly that provides fright factoring companies the means to efficiently manage the complexities of the trucking industry. This competitive advantage explains the rise in freight factoring popularity as banks continue to reject credit applications from trucking companies.

Easy qualification and fast funding provides the ability for trucking companies to turn financial stress into positive cash flow in a matter of a few days. For trucking companies facing operational interruption due to financial constraints, freight factoring is the key to unlock and leverage the money they have already earned. It is the fastest and easiest way to secure reliable funding for busy owner-operators, fleet managers and freight brokers.

For more information on how to qualify for freight factoring visit eCapital.com

Refer a Friend to eCapital Freight Factoring and get cash if they become a new client.

ABOUT eCapital

Since 2006, eCapital has been on a mission to change the way small to medium sized businesses access the funding they need to reach their goals. We know that to survive and thrive, businesses need financial flexibility to quickly respond to challenges and take advantage of opportunities, all in real time. Companies today need innovation guided by experience to unlock the potential of their assets to give better, faster access to the capital they require.

We’ve answered the call and have built a team of over 600 experts in asset evaluation, batch processing, customer support and fintech solutions. Together, we have created a funding model that features rapid approvals and processing, 24/7 access to funds and the freedom to use the money wherever and whenever it’s needed. This is the future of business funding, and it’s available today, at eCapital.

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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.

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