Using Freight Factoring Services for Immediate Cash
If you own a freight or shipping business, you've likely encountered problems with collecting funds you were owed. Some of your clients may not pay their invoices one to two months after you send them while others may try to avoid paying altogether. The delay between delivery and payment can put a strain on your cash flow. By hiring a freight factoring firm, you can get cash in hand without having to chase down customers.
Why use freight factoring?
There are plenty of factoring businesses throughout the U.S. and the world, but freight and shipping companies benefit from using a factoring service that specializes in certain industries. A freight factoring company understands the minutiae of the freight industry, and can offer specific services (and offers) that apply directly to your business.
For example, these businesses are familiar with the different documents used as bills of lading. They can process those documents quicker and will make fewer mistakes than a factoring company that may focus on serving the manufacturing or health care industries. In addition, their billing and collection systems are designed specifically for issues and situations that emerge in the freight industry.
How much does it cost?
All Freight Factoring companies use the same basic formula to determine your rate: Monthly volume, Average invoice, Invoice ageing (how long does it take your average customer to pay), Concentration of customer base (how many diverse industries you serve, and your specific industry. Each company charges a different rate which can range from 1% to 5% of the invoice.
For example, you may have $20,000 in receivables. A Freight Factoring company could lend you up to 90% of the face value. In this instance it would be $18,000 in cash to you up front. When the bill is paid by your customer you would receive the other 10% minus the factoring company's fee. If the company charged an average 2.5%, you would receive another $1,500. This is the remaining $2,000 (10%) minus $500 for fees.
Selecting the right freight factoring companies
You may find that multiple freight factoring companies appear similar which could make it difficult to select the right one. This is why it's important to secure price quotes from several different freight factoring companies so you can investigate each candidate before selecting one to work with. Most of these "factors" will clearly advertise their commission rates (or factoring fees) which can range from 1% to 5%. However, it's often the company's other qualities like customer service or speed of payment that can help you make an appropriate selection.
Some freight factoring companies, for instance, allow you to factor on a load-by-load basis. This means that you can choose which shipment bills you'll need payment on first. Other companies offer schedule factoring which means that all freight delivered to a specific client must be factored together.
You should also learn whether or not the firm has a minimum volume requirement. If they do, it means you must agree to use their services for a certain amount of time each month. This can prove dangerous to your business if volume changes seasonally. For example, the money you earn in December could be thousands of dollars higher than your July income.
There are far more freight bill factoring companies today than there were just 10 years ago so competition is clearly growing. Many of these firms distinguish themselves from their competitors by offering specific benefits that appeal to freight company owners such as complete payroll services, fuel discounts, collection assistance, preventative maintenance discounts, and more.
When you decide to use a freight factoring company, get the detailed charges for all transactions in writing. Their factoring fees should be clearly identified as well. If you need to factor large sums of money (tens of thousands or hundreds of thousands of dollars), make sure you have your attorney review the contract language before you sign anything. A typical factoring contract binds you work with that factor for a specific period of time, typically two or three years. Make sure you're satisfied with these terms before agreeing to work with a particular company.
Get free customized factoring price quotes from multiple companies by submitting our quick and easy form.Ready to Compare Factoring Price Quotes?