Freight Bill Factoring For Trucking Companies

Running a business is a tricky balancing act, but none so much so as running a trucking company.  Keeping all the balls in the air and all the trucks on the road means having a cushion of cash to fall back on when it comes time to pay for fuel, insurance, equipment loans, drivers, and repairs and maintenance, which will allow you to accept the next job so you can pay for the same costs the next month.  The trick is unless you have plenty of cash as a safety net, the freight you delivered today might not prove profitable for a month or two.  How do you pay for the costs you have today until money rolls in tomorrow?

Young companies usually feel the pinch sooner than veteran lines with deeper pockets.  One reason is that lending options are limited.  A business loan with a manageable interest rate is reserved for companies with established credit records and in the current economic climate, lenders will rarely even consider a trucking company without financials that can prove at least three years of profitable operation.  If that were the case, why do you need a business loan?

Another option is freight bill factoring or invoice factoring.  It provides more flexibility, return on invoices within days, quicker turn around on financing approval, and a greater ability to work with upstart or newer businesses because a factor’s willingness to factor invoices is based upon the credit worthiness of your customers rather than your own credit.

If you have maintained a decent credit history, secured reliable clientele, and stayed out of trouble with the tax man, you’ve likely met the approval requirements for freight bill factoring.  In which case, the factoring company buys invoices on freight already delivered and issues the majority of the payment within a few days.  The first installment is an advance and typically gives you an automatic return of up to 95 percent of the outstanding payment.  The second installment is a rebate that is kept in reserve to cover any disputed charges or damages and then is paid minus a fee once the invoice is actually paid.

The lending rate or factoring fee is calculated either daily or monthly based on volume and on how long the invoice is outstanding.  These rates average between 1.5 and 7 percent.  Most factoring companies lend under a non-recourse agreement meaning they assume the risk of nonpayment, in which case you are only out the 10 percent reserve instead of the whole invoice cost. Some factoring companies will also offer lower rates on recourse factoring, which means you still bear most of the risk of nonpayment.