Factoring is simply a cash flow solution that turns your invoices into quick cash. It is extremely common to use factoring services in the freight industry, as companies are then able to use the advanced funds for fuel needs and overhead business costs instead of having to wait 30, 60 or even 90 days for a payment.
Factoring works like this:
1. The carrier sends the invoice to the factoring company
2. The factoring company pays a large portion of that invoice quickly, while keeping a small percentage in a reserve account
3. The debtor sends the invoice amount to the factoring company
4. The carrier receives the rest of the invoice amount that was in the reserve account minus a small factoring fee
That’s it! It’s a relatively simple process that allows carriers and brokers to increase their working capital while allowing them to focus on growing their business.
There are usually two major types of accounts receivable factoring that companies can choose from: Recourse factoring and non-Recourse factoring. Recourse means the customer assumes the risk on invoices that aren’t collected within a certain number of days. Non-recourse factoring means the factoring company takes the risk on invoices that aren’t paid within a certain number of days.
To learn more about factoring, watch our video on the subject by clicking here.
Think factoring services are exactly what your company needs? Check out our top 5 tips for choosing a freight factoring company by clicking here. Continue to check back on our blog for more factoring tips and info!