Freight Factoring vs. Invoice Factoring: Which is Best For Your Business?

When your goal is fast payments, freight factoring and invoice factoring are both solid choices. With either of them, you complete the job, the factor pays you that same day or within a couple of days, and they chase down payment from your client. While that’s the general set-up, there are differences to keep in mind. 

Understanding the Differences Between Freight Factoring and Invoice Factoring

Freight factoring and invoice factoring are similar, but the main difference is that freight factoring is specific to the trucking industry. Because of this, certain benefits are available that are of great value, such as fuel discounts. With trucks on the road every day and regularly needing their fuel tanks filled, a fuel discount is a tremendous perk. 

Both work like this:

  • Do the work for your client, broker, or shipper.
  • Take the invoice or bill of lading and submit it to the factor for payment.
  • The factor processes the paperwork you submit, determines how much you get and how much the fee comes to.
  • The amount owed to you is sent to your bank account, gas card, or debit card.
  • The factor invoices your client, broker, or shipper and waits for payment.
  • If you didn’t get the 100% upfront, which isn’t always an option, the balance is paid to you once your client pays the factor.
  • If payment isn’t sent, the factor might come back to you to repay the amount you received.

That’s the general scenario with both. If you’re partnering with a freight factoring company, a bill of lading, rate sheet, and other paperwork may be requested in order to process your payment request. With invoice factoring, you have to generate the invoice and submit that to the factor for payment.

As a trucking company owner, you can use either option, but freight factoring offers several advantages.

Gain Insider Knowledge

You work with experts in the trucking industry. Invoice factoring companies don’t have a particular specialty as they work with any company. Because the company you’re partnering with has decades of experience in trucking, you can learn a lot of valuable tips to help you grow your business.

Get Fuel Discounts

The payments go to a fuel card that gives you substantial discounts on every gallon of gas. With TBS, fuel savings of up to 90 cents per gallon are possible. 

As of April 1, 2024, the average price of a gallon of gas in the U.S. was $3.517. Diesel was $3.996. With a full 90 cents off, you could pay as little as $2.617 for gas and $3.096 for diesel. The savings are tremendous, and you can use that money to grow your business.

Stay Up-to-Date With Payments

An app makes it easy to verify that you’ve picked up and dropped off loads at the proper location, which gives you a level of proof that you did the work on time. In addition to the VeriFast tool, TBS’s app allows you to see what’s available for funds, what is still being processed, and what’s heading to your bank or fuel card in the next day or two. You can pull up the invoices and upload them to your bookkeeping software.

Free Up Your Staff’s Time

Invoice factoring requires your office workers to generate invoices and then submit them. Freight factoring only requires the bill of lading. The freight factoring company generates the invoices for you, which saves on the amount of paperwork you have to complete.

Your office staff can be working on finding more work for your drivers, securing necessary permits or licenses to take on more valuable loads, such as FEMA work, or working on marketing campaigns.

Get Help With Required Paperwork

For small trucking companies, state and federal license and permit paperwork can be a hassle, especially if you are driving loads through several states. Freight factoring companies like TBS help you complete that paperwork correctly to avoid any delays that keep you from being able to do your job. 

Protect Against Non-Payment

Freight factoring arrangements can be recourse or non-recourse. In just a few months, the trucking industry has seen Boateng Logistics, Convoy, Nationwide Cargo, TBL Logistics, Yellow, and Wise Choice Trans Corp. have all filed bankruptcy or shut down completely, and that’s not all of them.

If you’ve done work for a company that shuts down or suddenly files for bankruptcy, you might never get paid. Non-recourse factoring protects against those situations. It’s a form of insurance essentially.

With a recourse arrangement, you have to repay the amount you received from the freight factoring company. In a non-recourse arrangement, you’re protected from repayment if the broker or shipper goes insolvent. The freight factoring company takes the loss. That can be a huge benefit when you’re still working to grow your business.

Enjoy Free Business Credit Checks

Before agreeing to haul loads for a new broker or shipper, doesn’t it make sense to do some research? The BBB can give a little insight into how many complaints have been lodged against a company, but a business credit report does a lot more to show you if there are outstanding payments, a lot of unpaid debt, or a history of paying past the invoice date. 

Experian charges almost $2,000 per year to be able to access the credit reports of 30 businesses per month. Just one report starts at $39.95. Instead, you could use TBS for freight factoring and be able to access as many business credit checks as you want to use. It’s unlimited.

Choose an Expert in the Trucking Industry

Whether you use invoice factoring or freight factoring, you pay a fee for the service. Freight factoring rates vary, but a good rule of thumb is to expect fees of 1% to 5%, depending on how many bills of lading you send for processing and how many trucks are in your fleet. The more loads you process through the freight factoring company, the lower the rates. Invoice factoring rates are similar.

Also, the amount you’re advanced will vary. Some companies offer 100% advances, meaning you get everything you’re owed, minus any fees. Others pay a percentage and offer the remaining balance when your client pays in the invoice. In the trucking industry, you usually get 90% or more, but it does vary from one company to the next. 

Invoice factoring may only pay 60% for certain industries, such as the construction industry. This is why it’s important to ask a lot of questions and ensure you’re partnering with a company that matches your needs.

TBS does not charge sign-up fees or require a certain volume of invoices. You’re not locked into a long-term commitment if you’d rather go month-to-month and see how it goes. Best of all, you don’t have to factor every client’s invoices. If you have a client you trust to pay you quickly each month, keep invoicing them as you have been. Use TBS for the newer clients who haven’t proven their reliability yet.

Anyone can use invoice factoring to get paid fast, but truckers gain many other benefits when they partner with a freight factoring specialist. TBS has been helping truckers get paid quickly and gain impressive discounts on fuel for more than 50 years. Sign up for free and protect yourself against another company’s bankruptcy or abrupt closure.

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