Factoring Info
What exactly is Factoring?
Factoring is the purchasing of invoices (accounts receivable) at a discount. A company that desires immediate payment for a good or service can sell its accounts receivable at a discount to a factor. This process is known as factoring or accounts receivable financing.
What is Transportation Factoring?
Transportation factoring is the purchasing of freight invoices at a discount. Motor carriers are the companies that sell its freight invoices to a factor in a transportation factoring relationship. Match Factors will only factor trucking companies.
Why Factor?
The reason why most motor carriers utilize factoring is to ensure a positive cash flow for its business. This process allows carriers to circumvent the typical wait time of 30, 60, or 90-days for payment from its customers. Maintaining a positive cash flow is crucial to any business, especially in transportation. By quickly converting its invoices to cash, carriers can better meet its debt obligations, including payroll, fuel, equipment, taxes, and other operating expenses. In addition, factoring frees carriers from expending energies and added costs on collecting invoices and managing its customers' credit.
Match Factors also offers a number of other benefits that can be viewed here
How Does Factoring Work?
Factoring is a simple process. Carriers generate invoices as they normally would, however invoices should be remitted to the Factor and not its customers. The Factor would pay the carrier within a specified time frame (anywhere from 24-hours to five days) for their invoices. The Factor would then mail the carriers’ customers the invoice, and the Factor would manage the collections process.
For a detailed description on Match Factors’ factoring process, please click here
How Much Does Factoring Cost?
Factoring does cost the company a percent of the invoice; however, when used correctly, factoring services pay for themselves. Not only does the company not have to deal with the headache of collecting invoices and the required wait time, but also the company is guaranteed prompt payment, which enables the company to maintain a positive cash flow. Also quality factoring companies often offer special benefits, like free credit checks, online report programs, and professional collections, all of which help save the company money.
In general, fees for factoring range anywhere from 1.5% to 15%, depending on several factors such as the volume of factored invoices, customers’ credit rating, and length of time for customers’ payments. Match Factors, Inc. charges a flat 5% fee to factor invoices. We will reduce our fee for qualified clients that meet certain restrictions.
Factoring Terminology
Like any process, factoring has its own unique lingo. Here’s some important terms to help you better understand the factoring process:
Advance Rate- Amount of money provided immediately to the company factoring its accounts receivable, typically expressed as a percentage of the total invoice amount. Industry Advance Rates range from 65-95%. Match Factors’ Advance Rate is 95%
Discount Fee or Service Charge- Discount fees or service charges are the percentage of the total invoice amount that is being charged to the company factoring its accounts receivable. Industry Discount Fees vary, however Variable (fee varies) and Flat (fixed fee) Discount Fees are very common. Fees can range from 1.5% to 15%, depending on a number of factors. Match Factors charges a flat 5% Discount Fee as part of our standard program.
Factor- The Factor is the company that purchases the accounts receivable from the Client.
Client- The Client is the company that sells its accounts receivable to the Factor, thereby receiving immediate working capital.
Debtor- The Debtor is the Client’s customer, the company that is being billed on the invoices and the party that will ultimately pay the invoice to the Factor.
Reserve or Escrow- The Reserve or Escrow is the amount of money that is not immediately provided to the Client factoring its accounts receivable, typically expressed as a percentage of the total invoice amount. Most factors maintain a Reserve or Escrow account on its Clients in the event the Client’s invoices are not paid or short paid. The Factor will reimburse the Reserve or Escrow back to the Client when the invoice is paid. Match Factors utilizes a 15% Reserve policy, which is based on the Client’s outstanding accounts receivable balance and created during the Client’s first month of service.
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Match Factors, Inc.
PO Box 13259
2736 TV Road
Florence, SC 29504
Ph: 800-738-9591
Fax: 843-678-3675
Match Factors, Inc. is a proud member of the International Factoring Association