Is Factoring a Good Idea for Your Trucking Company?

eCapital Corp

Last Modified : Jan 23, 2024

Fact-checked by: Bruce Sayer

Trucking is a great business full of risk, rewards, difficulties and success stories. It is a volatile industry, ever-changing with new technologies, new regulations, fluctuating market conditions and global disruptions from pandemics to blocked supply chains. Navigating these unpredictable waters is challenging at best, but planning, preparation and good management can overcome a significant number of tests and trials that typically pop up as barriers to success.

Be sure to have a business plan in place that detail actions to be taken, resources required and an anticipated timeline for achieving your business goals. Leverage your trucking experience to develop your plan and lean on the expertise of others to fill in missing details. For too many trucking companies, financing is a major stumbling block and one of the most difficult requirements to plan for – for others, it’s a common problem with a simple solution. Freight factoring is a mainstream financial strategy used by a growing number of trucking companies to enhance cash flow support operations and fund growth. It is designed specifically for the transportation industry. If you own a trucking company and need fast, easy access to working capital, factoring is definitely a good idea for your trucking company.

Why is freight factoring the best financial solution for your trucking company?

If your company’s cash flow is consistent and positive, plus you have a healthy cash reserve on hand, then financing is not an issue – for a majority of trucking companies this is not the case. A coffee shop produces and delivers their product on the spot then accepts payment at point of purchase. For a profitable shop, cash flow is regular, predictable and positive. Trucking is a completely different business model with an entirely different cash flow situation. Heavy over-the-road expenses are paid upfront to deliver services before an invoice is issued to typically slow-paying customers. These upfront costs followed by long payment terms commonly cause a cash flow problem and restricts access to working capital. Without readily available funds to support operations, your working equipment will be parked without fuel, without a driver or in need of repairs to keep it on the road hauling freight. Freight factoring is a simple cash flow solution designed specifically for trucking companies to solve this problem.

Not too long ago the normal approach to access working capital was to arrange a line of credit with the bank. Those days are long gone! Banks have restricted credit to small and medium-sized businesses as they are considered higher risk and less profitable then lending to larger corporate clients. Try applying for a business bank loan and see how fast you are denied. To fill the lending gap created by the banking system, alternative lenders have stepped forward to provide the cash flow solutions businesses need. These non-bank lenders provide faster funding, easier qualification criteria and more flexible terms. Generally speaking, alternative lenders provide two forms of lending; asset-based lending and invoice factoring.  For trucking companies, the best funding solution is to work with an invoice factoring company that specializes in transportation. These companies provide freight factoring, a specialized form of invoice factoring designed to make life easier for owners of trucking companies.

Benefits of freight factoring

The biggest benefit of factoring invoices is that it allows the owners of trucking companies to concentrate on servicing their customers rather than the additional challenge of chasing them for payment. Across all industries, late-paying customers are an issue, but trucking customers are particularly notorious for taking a long time to remit payment on invoices due. As shipping costs increase and the economy struggles to recover, shippers are using longer payment schedules as a strategy to improve their own cash flow situation, which in turn further hinders the financial health of trucking companies. To add to the problem, trucking companies need to offer payment terms to their customers in order to remain competitive. These terms are typically 30 days, encouraging late-paying customers to stretch their payments even longer. For trucking companies having to run with aggressively tight margins, one customer who doesn’t pay on time can be enough to damage operational capabilities. This dilemma is quickly resolved by the use of freight factoring to convert invoice receivables and freight bills into immediate cash.

Here’s a quick run-down of all the benefits of freight factoring:

• Fast access to cash: Invoices are converted to cash and deposited into your account within 24 hours.
• Easy qualification: If your trucking company services credit-worthy customers, you will easily qualify and receive first funding in just a few days.
• Cost effective: Freight factoring is priced to be the lowest cost of invoice factoring for trucking companies.
• Cost-free collections: A team of industry experts take on the responsibility of collecting payment from your customers. Trained to be effective yet courteous, these professionals improve accounts receivable management, handle invoice disputes and maintain healthy customer relations all at no additional cost.
• Easy to manage: A reputable fright factoring company appoints a dedicated account manager to guide you through the process of funding, streamline services and ensure quick response to any issues that arise.
• Full transparency: Access to your account is 24/7 through an online portal showing all transactions in real time. Balances, historical records, credit limits and more are all available providing full transparency and to assist preparing for tax reporting.

Additional benefits of freight factoring

If the above list of benefits is not enough to convince you that freight factoring is a good idea for your trucking business, here’s more:

• Fuel cards: Freight factoring companies, such as eCapital, provide fuel cards for convenient, secure expense management and more importantly: huge savings every month! Fuel is the largest operating cost to keep your equipment running – fuel cards with credit terms and savings at major truck stops across North America provide a huge positive impact on your bottom line.
• Free credit checks: A reputable freight factoring company will provide cost-free credit checks to verify a customer’s ability to pay before you haul. The simple act of checking credit scores before you haul will greatly increase your ability to identify poor paying customers and avoid bad debt – your bottom line will thank you.

How to choose the best factoring company for your trucking business?

Invoice factoring companies service clients in many industries. When searching for the best factor to managing your trucking company’s cash flow, look for one that understands your business. Freight factoring companies specialize in transportation – they know how trucking works and the pain points that owners face every day. Their services are designed to be fast, convenient and easy to manage, allowing company owners to concentrate on trucking rather than accounting. When selecting a freight factoring company, consider the following:

• Speed of funding: The right factor for your trucking business will qualify you and start funding within a few days. Once your account is set up, cash will be deposited into your account within 24 hours of submitting invoices. The process is seamless, transparent and dependable. If any invoices are disputed by your customer, the factor’s accounts receivable team steps in to facilitate a quick resolution.
• Superior customer service: The whole idea of freight factoring is to provide fast, dependable funding without hassle or delay. Ensure the factor you choose to work with provides a dedicated account manager and easy access to your account in full detail. The most important consideration is to determine if the factoring company truly understand trucking, has the expertise to resolve unexpected issues quickly and will have your back should external pressures threaten your financial stability.
• Trust: Your chosen factoring company is your financial partner – make sure they are worthy of your trust. Check the company’s website for reviews and testimonials or for more impartial reviews, go to an independent consumer review website such as Trustpilot. Get to know the people you will be working with – in all likelihood your first contact will be with a member of the company’s sales team. If this contact knows trucking, is open and easy to deal with then it’s a good indication the people you work with to process funding will be much the same. Before committing to any one factoring company, check the fine print on their contract carefully – ensure there are no hidden fees and no surprises.

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.

Conclusion

Freight factoring is a great solution for carriers and brokers to generate a successful cash flow strategy. Whether your company is a start-up, growing or in transition, freight factoring is a simple solution to an otherwise complex financial problem. The important issue is to find the right factoring company to partner with. Make sure you understand how factoring works and know the basic terminology to enable asking better questions and making an informed decision when interviewing factoring companies.

For more information on freight factoring, visit eCapital.com

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

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.