Freight bill factoring allows transportation companies to get the working capital they need without waiting 30, 60 or 90+ days for their customers to pay. It is quite common for new, small and/or growing transportation companies as it provides a way to pay for things such as fuel, maintenance, payroll and more.
To help demystify freight bill factoring we would like to provide you with answers to commonly asked questions.
Q: Who is a good candidate for freight bill factoring?
A: In today’s world, the reality is almost any transportation company that creates an invoice is a viable candidate for freight bill factoring. Factoring is ideal for any company that cannot afford to wait for payments owed to them. Far easier and faster than trying to secure a business loan, freight bill factoring can be set up quickly, helping you to stabilize your financial position and allow you the ability to pay for fuel, repairs and keep your drivers happy.
Q: How can freight bill factoring benefit my company?
A: Freight bill factoring provides an immediate increase in cash flow, allowing you to expand your fleet, more efficiently run your company, negotiate better rates on your loads and handle the unexpected. Your company will be in a more secure position to increase your ability to budget, forecast and plan more accurately. You can factor as much or as little as you want. Remember, factoring is based on the financial strength of your customers; this is another reason why freight bill factoring can benefit just about everyone.
Q: Is there a minimum I must factor?
A: With some factoring companies there is no minimum. Additionally, there are no monthly, quarterly or annual requirements. You always remain in control by determining what invoices you want factored and only paying for the funding that you use. If that kind of flexibility and customization is important to your transportation company you should make sure you are working with factoring company that offers those terms.
Q: Do I need to sign a long-term contract?
A: Long-term agreements are not required with some factoring companies. You factor the invoices you want, when you want to. If this is a key element in your decision to use factoring, make sure you choose a company providing these terms.
Q: Do I have to factor all my invoices?
A: With some factoring companies the answer is no, you decide what to factor. This means you retain control of your business. You know your business best; therefore, you should determine the fundings needed for your business.
Q: What happens if I sell you an invoice and my customer fails to pay?
A: If you are working with a factoring company on a recourse basis then in the event your customer fails to pay on an invoice and the factoring company is unable to collect, you will need to repurchase the invoice. Or, the factoring company can replace the old invoice with another invoice from another Debtor of your choice.
If you are working with a factoring company on a non-recourse basis then they have assumed the risk so you are not responsible.
Q: Am I eligible to factor if a UCC is filed against my company?
A: Yes. However, subordinations for 1st lien position on the accounts receivable is required. Often times the factoring company is able to acquire subordinations so they can continue to factor your accounts.
Q: My Company has a federal tax lien. Am I eligible to factor my accounts receivable?
A: Factoring companies do not want to jeopardize their position and ability to collect on the accounts you have factored. A Federal Tax Lien means the factoring company may need to put in place a secondary account so that they are protected against any IRS levy.
Q: How do freight bill factoring companies approve credit limits for my customers?
A: Freight bill factoring companies utilize the resources of multiple credit reporting agencies, which specialize in the transportation industry. They use these agencies to gather information to determine their credit limit. Some freight bill factoring companies also provide you with access to one of these at no charge so you can pull a customers credit 24/7 to help you determine if they are credit worthy.
Q: What is the difference between “recourse” and “non-recourse” factored invoices?
A: Invoices factored on a “recourse” basis means that the client is ultimately responsible for payment whether or not the customer pays. Factoring invoices on a “non-recourse” basis means that the factoring company assumes the credit risk of the customer (usually at higher rates), thereby protecting the client from possible credit loss.
Q: How much do freight bill factoring companies charge for these services?
A: For many factoring companies the fee is based on monthly dollar volume, number of invoices, the length of time it takes your customers to pay invoices and the credit of your customers. You want to make sure you are working with a factoring company whose fee is all-inclusive so they won’t be hitting you with unexpected charges.
Q: When will I receive my money?
A: The amount of time it takes for you to receive funds depends on how you would like it. Bank wires and fuel card loading are typically done within a few hours of you submitting the paperwork. ACH/Direct deposits are done the same day as well with the funds hitting your bank the next morning.