Freight bill factoring and finance, in general, can often seem to have a language all its own. So we have compiled a list of common freight bill factoring terms to help you understand how it can help your business.
Accounts Receivable: Your accounts receivables is the money that you are owed by your customers. This is typically done by issuing invoices or freight bills.
Accounts Receivable Factoring: Accounts receivable factoring, also known as invoice factoring, is a common form of business financing where a business sells their invoices to a finance company referred to as a factoring company in order to receive the funds immediately.
Advance: An advance is the money that the factoring company will send you immediately, in advance of being paid by your client.
Advance Rate: The advance rate is the percent of your invoice or freight bill that the factoring company will send you immediately.
Client: A freight bill factoring client is the trucking company that has partnered with the factoring company to receive funds for their invoices or freight bills.
Collections: Collections are the funds that the freight bill factoring company collects from their client’s brokers and shippers for the invoices/freight bills that have been factored. The payments typically flow through the factoring company’s lockbox system.
Contract Term: The contract term is the amount of time the factoring company requires you use their services. This can range from no required duration to up several years. With Tetra Capital you get the flexibility to choose how long you work with us as we don’t lock you into a contract term.
Credit Limit: Your credit limit is the total amount that the factoring company will allow you to submit invoices or freight bills for, for each of your customers. The credit limit is usually determined by several factors including your customer’s credit rating and past payment history.
Credit Terms: Credit terms are your invoice/freight bills payment terms which allow your customers to pay within a window of time that you have defined and they have previously agreed to, typically it is 30 or 60 days after they receive the invoice/freight bill.
Escrow: Escrow is a pre-determined amount of the invoice that is held in a separate account to help mitigate risk. Escrow can be used to clear up any old invoices old any problem on the account. Tetra Capital does not require an escrow to be held but many factoring companies do.
Factoring Fee: The factoring fee is the amount that the factoring company charges to finance your invoice/freight bill.
Freight Bill Factoring: Freight bill factoring, also known as freight or transportation factoring, is a common form of business financing for transportation carriers and freight brokers where they sell their freight bills to a finance company referred to as a factoring company in order to receive the funds immediately.
Funding Fees: Funding fees are fees some factoring companies charge their client’s on top of the factoring fee. The funding fees can include fuel card fees, ACH fees, processing fees, invoice fees and more. Tetra Capital takes a no nickel-and-diming approach and does not charge any funding fees. The only additional fee would be for an exception item which rarely happens.
Funding Limit: Your funding limit is the total amount of funds the factoring company will extend to you.
Funding Period: Your funding period is the time from when you submit the invoice/freight bill to the factoring company to be paid until your customer pays the factoring company in full.
Invoice Verifications: Invoice verifications are done by freight bill factoring companies as a way to ensure that the freight has been delivered as is indicated on the freight bill that was submitted to them for payment.
Notice of Assignment: The notice of assignment is a letter that is sent to your customers letting them know that the invoice/freight bill has been factored and lets them know they are required to submit payment to the factor.
Reserve: The reserve is the percent of the invoice/freight bill that the factoring company holds until your customer pays in full. It is used to cover expenses associated with possible bad debt collection and payment shortages. Many factoring companies will hold a reserve; however, Tetra Capital does not require a reserve.
Recourse Freight Factoring: Recourse freight factoring is applicable when the carrier’s client does not make payment on the invoice the carrier is ultimately responsible for repayment on the invoice.
Schedule Documents: The schedule documents is what the factoring company’s client submits to assist in getting their invoices/freight bills funded.
UCC: UCC stands for the Uniform Commercial Code. It is a Federal Code that has been put into law to harmonize the sales and commercial transactions across the 50 United States.
UCC Lien: Factoring companies use UCC Lien’s to secure a security interest when collateral (your invoice/freight bill) is pledged in case of default or bankruptcy.
Verification: Verification is the process a factoring company uses to check on the accuracy of the invoice/freight bill being submitted for payment.
If there are additional freight bill factoring terms we have not included that you are wondering about please let us know. We can be reached at (801) 676-0182 and would be happy to help.
