Factoring is particularly popular in the trucking industry and has proven to be a great fit for a range of different trucking companies. Whether your fleet is large or small, local or far-reaching, partnering with a factoring company for trucking can help you manage your finances and improve your cash flow.
In this guide, we’ll go over pros and cons to factoring and finding the best factoring company for trucking.
But first, why should you factor at all?
Simply put, factoring is the act of selling invoices to a factoring company for immediate cash. Your factoring company of choice will then work directly with the client to process these invoices.
Factoring has become a more and more common practice in trucking because the improved cash flow helps cover the many unexpected costs in the trucking industry. This also means more flexible time for your company, as you’ll be spending less time managing invoices. If you’ve been struggling with your cash flow or managing your time, factoring can help free up both of these elements. Once you understand what factoring is and its benefits, you’ll be able to choose the best factoring company for trucking.
Pros and Cons
Factoring isn’t a flawless system, and there are pros and cons to consider before committing to a program.
- Fast funding. In many cases, you can receive an advance within 24 hours.
- Your customers’ credit history will be much more important than your own, making it easier to overcome weak credit.
- Your invoices are sold to the factor – you are not borrowing money as your customers pay back your advances.
- The factoring company collects from customers, providing more free time for your business.
- Factoring fees can be expensive—scout out your factoring partner to make sure there are no hidden fees!
- Depending on your factor, you could be locked into a long term contract.
- Your customer’s payments are collected by the factoring company – make sure you find a partner who enhances your relationship with your customers and treats them as well as you do
You’re ready to factor when…
If you’re trying to decide whether or not to factor, ask yourself: is your business one or more of the following?
- A new or small company, particularly one that is struggling to land a bank loan.
- Your clients often don’t pay on time, making it difficult to keep up on cash.
- Often in need of more cash on hand than is available at the time.
- Hesitant to get a business loan and potentially start racking up debt.
- Interested in expanding but short on cash to start making the necessary purchases.
These aren’t the only reasons to start factoring, but if you are in one of these situations, you can expect help that’s customized for your specific situation with factoring. Factoring can also offer the following benefits, regardless of the situation:
- Quick, easy access to funds.
- Ability to grow a business without potential cash flow interruptions.
- Reliable funding, even if your company has a bad credit history.
How to Choose a Factoring Company for Trucking
Picking the right factoring company for your business can make or break the factoring experience. One of the first things to do is to determine where your business fits into the following 6 different factoring categories.
1) Spot Factoring and Contract Factoring
How many invoices do you want to factor? Whether you’re interested in being selective about invoices or don’t want to bother sorting through them, there are options available. Spot factoring allows companies to decide which invoices they want to factor. This flexibility often lends itself to smaller companies. Contract factoring requires that companies factor all their invoices, which can be simpler for larger companies that handle many accounts at once.
2) Low- and high-volume factoring
Low-volume factoring is usually best for small businesses. Companies that do comparatively less business will ask for lesser advances in factoring agreements, and usually have rates of 2% – 5%. High-volume, naturally, is the opposite. High-volume factoring is for larger companies, and usually has a rate of 1.75% – 5%.
4) Flat and variable rates
You will likely have the option to choose between flat and variable rates when selecting a factor. A flat rate will remain the same for all invoices, while variable rates rise and fall over time. Flat rates mean no interest rate changes or unforeseen fees, but your rate of payment will also never drop the way it potentially could with a variable rate.
5) Recourse and non-recourse agreements
Small companies are usually automatically entered into recourse agreements. If you are in a recourse agreement, you must buy back any unpaid invoices from your customers. Larger companies often have the option to enter into a non-recourse agreement, which means the trucking company is not responsible for any failed customer invoices. This can be beneficial, but non-recourse agreements also often come with higher rates and other stipulations.
6) Reliability is the MOST important element
Choosing a factoring partner can be very challenging, especially if you’ve been burned by a factoring company before. If you can find a company you trust, you will inherit a valuable team committed to removing the money-stress in your business. A reliable factoring company will always answer your call when you need them and will be upfront and honest (instead of gouging you with hidden fees or locking you into a contract).
If you’re looking for a reliable factoring company, we’d love to chat. Click here to learn more.
What do you think? Ready for a Reliable Factoring Company for Trucking?
Provident is a factoring company for trucking that provides factoring services for carriers and brokers.
We offer same-day/next-day funding and competitive rates BUT we pride ourselves in our customer service. You won’t find any hidden fees or locked-in contracts here!