How Factoring Companies Help Trucking Businesses Stay Afloat

Among the challenges faced by companies in the trucking industry is unreliable cash flow. When you depend on clients to pay your invoices, late payments can impact your ability to function smoothly. This can be particularly difficult when operational costs, such as the price of fuel and repairs, fluctuate from one season to the next.

Invoice factoring can help you overcome these challenges and enjoy better cash flow all year. If you are wondering “what is a factoring company?” It’s a company that buys unpaid invoices from businesses. “How does a factoring company work?” It provides immediate cash for invoices so you aren’t forced to wait for clients to pay. Let’s look at factoring more closely and answer questions such as “how do I qualify” and “how much do factoring companies charge?”

What Is a Factoring Company?

A factoring company is a financial organization that buys unpaid invoices at a discount. When a business such as a trucking company sends out invoices, they may have to wait weeks or months for customers to pay them. Factoring companies help fill these cash flow gaps by providing immediate cash for invoices.

Factoring companies work with businesses in many industries, including trucking and transportation. These are businesses that can be especially impacted by cash flow issues. All kinds of conditions outside your control, from energy prices to the weather can affect your customers’ ability to pay invoices on time.

How Does a Factoring Company Work for Trucking Businesses?

Invoice factoring for trucking companies, also known as freight factoring, can be extremely beneficial. The following are the steps you’d take when working with a factoring company.

• After creating freight invoices, you submit them to the factoring company with a proof of delivery (POD) and any other backup documents required by your customer.
• You get an advance within 24 hrs of verification , at 95% of the invoice’s value.
• The factoring company collects payment from the shippers or brokers.
• When we get paid you receive the remaining balance with fees deducted.

When you get payment from the factoring company, you can use these funds for fuel, vehicle maintenance, payroll, or anything else. Aside from the cash flow boost, factoring reduces the need for administrative tasks. The factoring company becomes your partner and does collections on your behalf.

Related: 10 Ways to Increase Profitability of Your Trucking Business

How Much Do Factoring Companies Charge?

When you consider any type of financing, you need to consider the charges. One of the advantages of factoring is that, unlike bank loans, there’s no impact on your credit or interest payments to make. However, factoring companies do charge fees. Depending on the company you work with, you have to consider a few variables.

You may be charged a flat rate or a variable fee. With a flat rate, you pay the same fee regardless of when your customer pays the invoice. With variable fees, the rate goes up the longer it takes the customer to pay.

The average rate charged by factoring companies is between 1% and 5% per invoice. The cost depends on several factors.

• The volume of invoices that you issue.
• The creditworthiness of your customers.
• Whether the factoring is recourse or non-recourse. With recourse factoring, the business is responsible for unpaid invoices. In non-recourse factoring, the factoring company takes on the risk so you’ll have to pay higher fees. Riviera Finance is a non-recourse factoring company.

When researching questions such as how much do factoring companies charge, make sure you understand the terms of your arrangement. Look for companies that offer transparent pricing. Be sure to ask questions if you’re not clear about anything.

Why Your Trucking Business Should Consider Factoring

Cash flow is often a serious challenge for trucking companies. You have significant expenses such as fuel, vehicle maintenance, and insurance. At the same time, payment cycles of 30 to 90 days are common. Here are some reasons factoring is such a beneficial arrangement for businesses in the transportation and trucking sectors.

• Helps you achieve consistent cash flow. With factoring, you can count on having cash on hand to meet all your expenses.
• Your business can grow faster. As cash flow improves, you can hire more employees, buy more trucks and equipment, and take on more loads.
• You have less financial stress. With factoring, fees are paid with each transaction. You don’t have to worry about taking on debt and making interest payments.

Related: Tax Deductions For Owner-Operator Truck Drivers

Choosing the Right Factoring Company

When you want to choose the best factoring company for your needs, consider these questions.

• Do they have experience in trucking? You want to work with someone who understands your needs.
• Do they offer good rates and transparent policies?
• What kind of UCC-1  (lien) do they file? Blanket (all assets) or Limited (invoices only). Riviera Finance files a UCC-1 on the invoices only, we do not encumber your other assets with a Blanket lien.
• What kind of additional services do they offer? For example, they might do credit checks on your customers or offer fuel cards.

Riviera Finance, one of the most experienced and trusted names in invoice factoring, has worked with freight companies for more than 50 years. To find out how we can help you meet your financial goals, contact us.