If you’re an owner-operator or own a small fleet of trucks, you know how quickly bills and other business expenses can start adding up. If you’ve been around the trucking scene for a while or have searched online for funding options for a trucking company, you’ve probably heard of freight factoring. But what is it? How does it work? Why choose this option? Let’s talk about it!
So, what exactly is freight factoring?
Factoring is an alternative funding option where a business sells their accounts receivable/invoices to a third-party financial company, known as a factor or a factoring company. Many types of industries use factoring as a funding source, but in the trucking industry it’s typically referred to as freight factoring or freight bill factoring.
How does freight factoring work?
Most companies have to pay bills faster than they can collect on their accounts receivable. This disrupts cash flow. So, if you expect to collect on several accounts receivable next week, but need cash today, factoring is a great option. Not only does factoring turn your trucking company’s invoices into cash in a day, it also takes care of collections and other back-office work for your company.
Here’s an example of successful freight factoring:
- You send your company invoice with back-up to CoreFund Capital
- CoreFund forwards the invoice to your customer
- You get paid a percentage of your invoice the same day
- CoreFund collects your invoice from your customer
- CoreFund collects a small fee for its services
Factoring is a really flexible funding option. With us at CoreFund, you get to choose which of your customers’ invoices you want to factor. We don’t lock you into a long term contract and we don’t require a monthly minimum.
Factoring isn’t a loan. There’s no debt incurred by factoring and there’s no restrictions on how you use your funds.
What kind of factoring will you choose?
There are two main kinds of factoring – non-recourse and recourse. Let’s look at the differences:
Recourse factoring is the most common and typically used type of factoring. With recourse factoring, a factoring company will fund your accounts receivables, but your business will be responsible for providing any potential needed refunds due to unpaid invoices. Because you are assuming the risk, rates for this type of program are usually more competitive.
Non-recourse factoring is the opposite – the factoring company takes on the responsibility and risk of potential non-payment. Because this is a higher risk option for factoring companies, the fees for this type of program are usually higher than their recourse programs fees.
Need more info about freight factoring and if it’s right for you? Contact us today 800-504-5464.