Freight Factoring for Small Businesses: What to Look For in a Partnership

Already in 2024, a Fort Worth transportation and logistics provider announced plans to shut down a distribution center and lay off more than 150 workers. A Tennessee logistics provider announced it was closing and laying off more than 50 workers. With continuing turbulence in the transportation industry, everything you can do to protect your company’s future is important.

Small trucking companies need a strong cash flow to keep up with wages, taxes, loans, and other business expenses, but it can be challenging. If your brokers and shippers aren’t paying you for weeks or months, that lack of incoming funds is devastating. Have you considered protecting yourself by factoring your invoices?

What Is Freight Factoring?

Freight factoring is a service for trucking companies where you haul a load and get paid within a few days. Many factors offer same-day payments. In exchange, you pay a small factoring fee that’s usually no more than 5%. 

As you’re getting paid quickly, you have a steady cash flow throughout the month. You’re not waiting until the end of the month to get paid for work you did during the first week. It makes it easier to pay bills and wages on time.

Freight factoring works like this. Suppose you finish a job and are to be paid $50,000. You enter into a recourse factoring arrangement with a 3% fee. You get 90% now and the remainder when your client pays the invoice. Of that $50,000, your freight factoring company keeps $1,500, so you’d get $48,500, but only 90% is paid now. 

You’d receive $43,650 right now. Your client pays three weeks later, you get the remaining $4,850. But, if your client doesn’t pay, a recourse agreement requires you to pay back that $43,650. Make sure you’re able to keep your obligations.

Explore All of the Benefits You Gain

Freight factoring comes with so many benefits that help you grow your small business. The biggest is that you might have brokers and shippers who collect a month’s worth of invoices and pay on the first or last day of the month. That’s a long time to wait, and mail times can delay payments even longer.  With freight factoring, your cash flow improves.

A freight factoring company will do the invoicing and collections for you. Your office staff can put their talents towards important work like marketing, scheduling, and searching for more loads.

As you have a strong cash flow and pay your bills on time, your credit score can improve. That ensures you get the best possible rate on business loans, credit cards, and other financial products.

At the same time, don’t ignore that factoring does have a factoring fee and other possible charges. It’s not a service that’s done for free. Allow for the small percentage that’s deducted from the amount you’re due. For example, if you had a load worth $20,000 and you had a 5% factoring fee, you’ll only get $19,000 and the freight factoring company gets the other $1,000. Plus, you might face other fees like bank transfer fees.

How to Choose the Best Freight Factoring Company

How effective is freight factoring? A trucking company in Florida shared that it started with 20 trucks and needed help with business growth. After working with different freight factoring companies, the owner struggled to find the right match. With a third freight factoring provider, the perfect fit occurred and the company has grown to have more than 80 trucks and continues to grow. 

When you choose the best freight factoring company for your needs, you’ll experience less stress and tremendous success. That’s the key, you need to find the best factor for your business. Not every company will meet your needs. Here’s how you can find the best fit.

Research, Research, Research

Don’t rush the decision. Take time and do a lot of research when finding a freight factoring partner for your small business. You want to talk to the company and see how responsive they are. Try different hours of the day and different days to ensure they respond as quickly as you expect.

Look into the different services each company offers. If one has free business credit checks and another charges $2 for each one, make sure you’re okay with having to pay. Free business credit checks might not be the best option if you have to hand over every bill of lading and can’t pick and choose which clients get factored and which don’t. Other services to consider are:

  • Fuel discount cards
  • Insurance discounts
  • Payment advances
  • Payment and invoicing apps

If you find a freight factoring partner, make sure you can still factor some of your clients without the factor’s involvement. You have a lengthy relationship with a broker. That broker always pays the next day, so you don’t want to factor those invoices. Verify that you’ll still be able to.

Do you have associates in the trucking industry? Ask who they use. It’s better to have a long list of potential factoring partners and narrow them down than to have just a few and not find a suitable option. The more possible candidates, the better it is. The research may take longer, but it’s better than rushing a decision and ending up unhappy with the arrangement.

Check Reviews and News

As you start narrowing down your choices, read reviews and see if there are any news stories about them. If you find any hint of problems that are clearly the fault of the factor, you might want to drop them from your list.

Don’t overlook the feedback and reviews on the Better Business Bureau, too. If the company fails to respond to any complaints, that can be a sign of poor management and customer service.

Read as many reviews as you can, but don’t believe everything you read. You might find a negative review, but as you read more into the situation, you realize the trucking company owner didn’t fully understand the rules. 

For example, you see a negative review from a customer stating they were furious that they had to repay when their client went bankrupt. That’s normal in freight factoring and a big reason to see if you have a non-recourse or recourse arrangement. In that case, the trucking company owner left an unfair review. Disregard it and move to the next.

Ask About Rates

See if you can see a breakdown of the rates. You’ll have to share information like how many trucks you have in your fleet. You want to make sure you’re choosing a company that has rates you’re okay with. Don’t make the mistake of thinking the lowest rates are always best.

You might find a factoring company with a fantastic 2% factoring rate. The other contender on your list is 4%. But, as you take a closer look, you see that the lower rate has hidden fees or other add-on charges like a credit check, application fee, or penalty for not factoring enough invoices. You have to decide if those hidden fees still make it the best option.
TBS offers same-day cash for invoices they factor for you. We make sure our rates are fair and easy to understand. Have the cash flow you need to run your small business efficiently and effectively, and we’ll handle the often frustrating office duties like invoicing and collections.

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