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Top 5 Things to Know About Truck Factoring

July 27, 2022
Phil Cohen
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Truck factoring, also known as freight factoring is a popular financing option for the transportation industry. Knowing the ins and outs of truck factoring will help your trucking company thrive. This cash-flow problem-solver gives truckers fast cash to pay for fuel, cover payroll, fund any on-the-road expenses, and gives you the ability to take on more loads.

Rather than waiting months to be paid for loads you’ve already hauled, trucking factoring puts cash in your wallet today.

If you want to start factoring your trucking invoices there are a few major things you need to know.

Truck Factoring 101: What You Need to Know

1. Know What Truck Factoring is Exactly and the Process.

Truck factoring is a form of invoice factoring designed for those in the trucking industry. It is NOT a loan. It is the process of selling your outstanding freight invoices to a factoring company for a cash advance of up to 98%. 

The transportation factoring process is far more simple than traditional financing. Applications for freight factoring typically process with a fast turnaround. After that, you can receive cash for factored freight bills in as little as 24 hours.

To apply for transportation factoring, you’ll need to complete an application and submit the following documentation:

  1. Operating authority
  2. Proof of insurance

The process of truck factoring is simple:

  1. Driver hauls and delivers loads for customers

    Business as usual

  2. Send a copy of your invoice(s) to the factor

    The client submits a copy of the freight bill to the trucking factoring company for verification

  3. Get paid up to 98% of the invoice’s value

    The factoring company advances the client a percentage of the invoice’s value within 24 hours

  4. Factor collects payment from the customer

    The customer sends payment to the transportation factoring company

2. Know these Invoice Factoring Terminology.

There are specific terms used in the truck factoring world that you should know:

  • Advance Rate – Money provided immediately to the company factoring its accounts receivable–expressed as a percentage of the total invoice amount.
  • Client – You, the provider of the goods or service to a “customer.”
  • Customer – The purchaser of goods or services responsible for the paying invoice.
  • Factor – A company that provides operating capital to businesses by purchasing their accounts receivable.
  • Reserve – Amount of money not immediately provided to the company factoring its accounts receivable when the factor purchases the account. The reserve represents a percentage of the total invoice amount.
  • Spot factoring – With spot factoring, the business owner can choose which invoices to sell and when. There is no locking into a termed contract.
  • Recourse Factoring – With recourse factoring, your business must buy back receivables that the factoring company is unable to collect payment. Recourse factoring rates are lower than non-recourse.
  • Non-recourse Factoring – With non-recourse factoring you’re not liable for invoice repayment if your customers don’t pay. Non-recourse factoring rates are usually higher than recourse.

3. Know Your Truck Factoring Rates and Fees.

Every factoring relationship features an established advance rate in combination with the factoring fee. The factoring rates for a trucking company depend on many factors including your monthly billing volume, the type of program you choose (recourse or non-recourse), and the factoring fee structure.  

When it comes to volume, a company with 10 trucks billing $100,000 per week will likely pay a lower fee than a company with 1 truck billing $3,000 per week. Most factoring companies for trucking offer volume discounts, so your rates will come down as you grow. Know your contract terms.

Avoid freight factoring service fees including minimum volume fees, early termination fees, and application/setup fees. There are plenty of factoring companies that DO NOT require these. When it comes to low factoring fees, we know where to find them. Our nationwide network of funding partners can get you the best factoring rates and advances and provide the most wide-ranging benefits.

4. Know the Needs of Your Trucking Company

Your trucking business needs should determine the type of truck factoring program you choose. Invoice factoring rates can be tailored to an individual company’s needs so that the money you’ve earned can go further. Maintaining constant cash flow is essential to keep your business on the road. If you need cash for fuel, insurance, repairs or even to haul more loads, truck invoice factoring can benefit your trucking company.

5. Decide if Factoring is Right for You

There are a few questions to ask yourself when deciding if truck factoring fits your needs. If you own a truck business and you have to wait for shippers and brokers to pay, you’re an excellent candidate for freight factoring. If you can’t haul the next load because you’re waiting for customers to pay you, you’re an excellent candidate for transportation factoring. Bridging the gap between what you’re owed and making money is where invoice factoring comes in. Freight factoring presents the opportunity to grow your trucking business.

Freight factoring is suitable for all types of transportation businesses:

  • Owner-Operators
  • Small to Mid-Sized Fleets
  • Freight Brokers
  • Auto Haulers
  • Dump Truck Services
  • Oilfield Transportation
  • Hot Shot Trucking
  • OTR & Local Carriers
  • Intermodal & Containerized Freight

Some things to remember about truck factoring while deciding are:

  • Bad credit or no credit history is OK. Truck factoring approval relies on your customers’ creditworthiness.
  • No need to worry about cash flow patterns slowing you down.
  • Initial funding does not dictate your credit line.
  • Amount of available cash is unlimited and grows with your business
  • Cash is available on the same day.
  • Fuel advances & fuel card programs are available for trucking companies & freight brokers.

A Freight Factoring Program That Works for You

Factor Finders works with a nationwide network of factoring companies with extensive knowledge of the freight industry. Our job is to do more so you don’t have to. We match you with the best truck factoring company to meet all your needs.

Contact us today, tell us what you’re looking for and get started with the factoring process.  Even if you’re currently working with a freight factoring company, contact Factor Finders to get a better deal.

Freight Factoring FAQ

About the Author

Phil is the owner of PRN Funding and sister company Factor Finders. He has been an authority in the factoring industry for over 20 years, serving on the board of directors for several factoring associations.

Learn more about Phil Cohen