There are a large number of freight factoring companies, also referred to as truck factoring companies, in the U.S. and Canada. They all provide freight factoring services for the freight and trucking industry, but there are important differences among them. When you’re looking for the right freight factoring company for your trucking business, you need to look at the following:
- Factoring rates
- Advance rates
- Long-term contracts
- Cancellation fees
- Credit services
The most common pitfalls when signing a factoring agreement involve one of these criteria.
Factoring rates vary depending on your monthly revenue and number of customers that you have. The larger your revenue, the lower your rate. Large trucking companies that deliver in excess of $500 thousand revenue per month may get rates as low as 1.5 to 2%. Smaller fleets and single owner operators may pay 3 to 5%. Also, the more customers you work with, generally the more your factoring services will cost.
Advance rates typically range from 90% to 95%. Some factoring companies advance up to 100% of the freight bill amount. This is referred to as “fully-funded”. Fully-funded invoices advance the entire amount of the invoice, less factoring fees.
Some factoring companies try to lock you into a long-term contract of a year or more. They auto-renew your annual contract unless you give them 30 to 60 days notice of cancellation during the cancellation period immediately preceding renewal. If you forget to cancel for any reason, then you get bound to another year of service with that factoring company.
It’s best to find a freight factoring company that offers month-to-month or no-term contracts. These factoring companies know they have to earn your business every day and their confident they can do it. You can save yourself a lot of headaches and stiff cancellation fees if you ever decide to move to another factoring company.
Free Credit Checks
Most good freight factoring companies offer free credit checks for their trucking clients. They’ll check credit to see if you want to ship for a particular broker or shipper. Credit checks give you payment information and payment history to make sure they will pay their freight bills and pay them on time. Factoring companies usually provide this service for free, as it also helps them avoid collection issues and bad debt losses.
Non-recourse Freight Factoring
Many factoring companies offer both recourse and non-recourse factoring options. Recourse makes the trucking company liable for customer credit issues, while non-recourse makes the factoring company liable. Non-recourse factoring usually costs more.
Freight companies need to be cautious when electing the non-recourse option. It may appear to be a great deal to have all your customer credit issues fall on your factoring company, rather than you. However, it can sometimes hurt your trucking business because factoring companies take on much less risk when they’re liable for payment. So, if you have a customer that has no credit information, then the factoring company may not factor those invoices. This can put you in a cash crunch or prevent you from working with that customer.
Finding a Freight Factoring Company
If you’re trucking business is looking for factoring services, then a great place to find the right freight factoring company is an online factoring directory or factoring broker such as FactoringClub. FactoringClub works with most trucking factoring companies in the U.S. and Canada. You can visit their website or contact Mazon Associates for our referral services – call Lisa at (800) 442-2740. Lisa is the President of Sales and Marketing for Mazon Associates.