The Impact of Freight Factoring on Your Business Credit Score

The best business credit score depends on the reporting agency. For FICO, the range of 0 to 300, with 300 being the best possible. PAYDEX, which is used by Dun & Bradstreet, ranges from 1 to 100, and a score of 80 to 100 is good. Experian’s ratings range from 1 to 100 with 76 or higher being the best. 

The higher your score, the lower the risk you are to a bank, credit card company, lender, or client. Unlike a personal credit score, however, there’s more to a business credit card than you might realize. 

What Factors Are Used to Calculate a Business Credit Score?

The ultimate goal of a business credit score is to determine the likelihood of a business shutting down within a year. For this reason, your company’s payment history is one of the factors used, but there’s more to it.

  • Do you have any outstanding court judgments or liens?
  • Have other companies in your area and field gone bankrupt or been financially stressed recently? Do you have any bankruptcies or restructurings in your history?
  • What are your assets and how much value do they hold?
  • How many open accounts do you have with suppliers?
  • Do you regularly pay early or by the due date?
  • How many years have you been in business?
  • How large is your trucking company?

It’s hard to get a perfect score, but you do need to aim for the highest possible. Freight factoring is a good way to boost your credit score. It doesn’t impact your score negatively, but there are things to consider as you set up a freight factoring agreement.

Everything There Is to Know About Freight Factoring and Your Credit Score

Freight factoring doesn’t lower your credit score. It can help increase it. One of the biggest considerations in a credit score is your ability to pay bills on time. If you have cash immediately after making a delivery and pay your bills on time, your score climbs. 

Compare that to the alternative where you have to wait a month or longer to get paid by your client. Until that payment arrives, you lack the cash to pay bills, so your late fees add up. All of those late payments or unpaid accounts impact your score negatively. Your score decreases all because you have a client who hasn’t paid you on time. Factor your invoices and you avoid that issue.

Some people worry that freight factoring makes you less appealing to brokers and shippers. They don’t want to deal with a factoring company, do they? The reality is that most don’t care. They actually appreciate the professional invoice and payment terms that you set. The only difference is that they pay the freight factoring company. They still talk to you about their shipping and transportation needs. It’s important to realize that, as you are still the go-to when it comes to getting work, delivering loads, and providing exceptional customer service.

The other benefit is that just as you’re pulling up the credit rating of brokers and shippers, they’re looking at your credit history. If you have a lot of court filings against you or a track record that makes you look like a big risk, a company won’t want to hire you. With a high credit rating, you’ll get more work.

Additional Services That Benefit You as a Trucking Company Owner

One of the biggest benefits of a freight factoring arrangement is that you can access business credit scores for free. Running a successful business often deals with a lot of risk. If you pick a broker or shipper with a poor credit history, you run the risk of never being paid. 

When you’re able to read a credit score free before you take a job, you can avoid some of that risk. It’s still an imperfect system as some may have a great credit report and turn out to be risky, and others have poor credit and are fantastic to work with. But, it’s a good way to start researching a client before you agree to work with them.

The one thing to consider is that while you get paid quickly, you could be at risk of repaying that money if your client never pays the freight factoring company. To bypass some of this risk, there are non-recourse agreements. 

Non-recourse agreements are essentially insurance against having to repay. You’ll pay a higher fee for this, but you have a level of protection. If your broker or shipper suddenly shuts down due to bankruptcy or unexpected closure, you don’t have to repay, the freight factoring company swallows the loss.

When you set up a freight factoring contract, you should ask about a fuel discount card. Imagine how much more revenue you’d have to invest in your business, which would boost your score, with fuel discounts of up to 90 cents per gallon. In just 1,000 gallons, you’ve gained $900 that you tuck into a savings account, build interest, and grow your assets.

Finally, TBS works with several insurance companies to negotiate lower rates for their trucking company partners. That’s another way you can save money and reinvest those savings into your business, which again makes your company’s credit score increase.

Tips for Improving Your Credit Score

When you need to boost your company’s credit score, there are some things you can’t change, such as how long you’ve been in business or court judgments that appear in your past. Focus on the things you can do.

Put as much revenue as you can into the assets you hold. This could be bonds, equipment, or buildings. High-interest products and business accounts are best, even if it makes it harder to use that money on a daily basis. 

Make sure you pay your bills on time. If you’re running short, take more work when possible and partner with TBS Factoring to ensure you have a steady flow of cash. 

When cash flows are high, make business credit card payments that are higher than the minimum payment. You don’t want to keep a balance on those cards as credit card interest is a lot higher than the fees with freight factoring.

The reality is that a freight factoring arrangement doesn’t impact your business credit score. It can help you raise it. Nothing is stopping you from taking advantage of the fuel discounts and other benefits you gain through TBS Factoring. In fact, you have a lot to gain, contact us today.

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