When you deliver a package, the recipient will sign a piece of paper that acts as your freight invoice. You will then file the signed document away. By signing, they indicate that they have accepted the cargo and will pay the owner-operator or the factoring company for the trucking of the items. Unfortunately, after the paperwork is completed, it might take anywhere from a week to several months before you are paid for your freight shipment, if you’re lucky. But if you were to manage the company, it would be the most acceptable option. Because of this, you cannot afford to wait sixty or ninety days for payment on the cargo that you delivered only last night. It would help if you ate, paid off your obligations, and moved the next load of merchandise, all of which needed gasoline.
Table of Contents
What exactly does it mean to factor trucks?
By using a factoring service, truckers have the opportunity to get money for their services considerably more quickly. In contrast, the factoring company handles the processing and collection of invoice payments. In exchange for this service, the truck driver agrees to give up a negligible amount of the money that is owed to the factoring company. Because factoring companies often demand a range of additional costs for their service, drivers are ready to trade in order to keep their wheels turning. This is because these fees reduce the amount of money that can be earned from a single cargo.
What steps are involved in the factoring process at a trucking company?
Through the process of factoring, you have the option of selling your load invoice to a company that specializes in the collection and handling of accounts receivable. The factoring company will often pay you practically the whole earnings from the load within a few days, but in return for their services, they will retain a percentage of that cash as a fee. After that, the control of the invoice is transferred to the factoring firm, and you are free to continue doing business. In contrast, the factoring company handles invoicing and collection of payments.
The following is an explanation of how the process is split down:
- The driver is responsible for delivering the goods to the customer, transporting them, and collecting a signed invoice from the customer.
- After that, the driver sends a copy of the invoice to the company they use most often for factoring.
- After receiving the invoice, the factoring company gives the driver an advance on the part of the invoice amount within a few days.
- The driver may get a payment equal to up to 98% of the total value of the first invoice.
- The factoring company takes on the task of invoicing and collecting payments from customers.
Why do businesses rely on factoring companies for trucking?
Numerous companies utilize factoring because they want immediate access to their cash flow in order to continue operating in the trucking sector rather than in three months’ time. When you consider that you have to pay for things like maintenance, fuel, taxes, and other business-related expenditures in addition to your compensation, the minuscule proportion of the value of the cargo that you give up in exchange for faster payment is a price that may be considered acceptable.
Comparing non-recourse and recourse factoring
If you decide to use the factoring services, there are two types of factoring that you will get familiar with: resource factoring and non-recourse factoring. If you are aware of the difference between the two, it will help you determine how much you stand to earn or how much you may possibly lose if you choose to work with a factoring firm. Let’s have a look:
Comparing recourse to non-recourse as a factor
Companies that provide recourse factoring take a minor percentage cut, which means more of your money will remain on your own at the end of the transaction. However, there is a catch to this. You are obligated to purchase the invoice back from them if they cannot collect payment from your client. When you need to keep up with your financial flow, being in that predicament is a poor place. And there is a reasonable probability that, in the event that the factoring firm could not collect on the invoice, you will be left without payment for the load for an unspecified amount of time.
Factoring without the need for recourse
Compared to their rivals, the businesses that provide resource factoring, those who offer non-recourse factoring give the impression of being the more morally good option. If you employ this factoring method, you won’t be responsible for paying the bill back if the consumer doesn’t pay it when they are supposed to. Another trap has been concealed in this area. When a non-recourse agreement is in place, a much more significant percentage of the invoice’s total value is transferred to the factoring business. Even though you will get a smaller cash payout as a consequence of this option, it is still preferable to the recourse factoring alternative, which compels you to pay us back the amount that was advanced to you.
Do I need a factoring company to achieve success as an owner-operator?
To ensure the smooth operation of your business, you do not need the aid of a factoring company for trucking. You will need to make room in your budget to account for the longer wait times for payments from customers, but you won’t lose money on the fees and the percentage cut that a factoring company takes. In the end, factoring is an improvement in the quality of life that is supplied at a cost, and many owner-operators have found success in doing so despite the fact that factoring is an expensive endeavor.
Because of the availability of factoring services, many trucking firms are able to continue their commercial operations, as well as have a consistent flow of cash, which enables them to expand their operations.
It is essential to choose a factoring partner that is both knowledgeable and trustworthy. Logity Dispatch is able to help its customers in the process of finding a reliable business partner that can provide the high-quality factoring services that are required by these customers. You will get assistance in selecting a reliable business partner, identifying the most suitable factoring partner for your requirements, and receiving the expert support that is provided to all of our customers.