An Introduction to Freight Factoring
This is part one of a three part series outlining the benefits of freight factoring for small to medium-sized trucking companies. Get The Trucker's Guide to Freight Factoring eBook to access all three articles in one easy-to-read format.
Factoring is a type of financial transaction in which a business sells its accounts receivable (i.e. invoices) to a third-party company (called a “Factor”) at a discount.
Factoring provides businesses with immediate cash on their invoices, and it allows businesses the freedom and flexibility to effectively manage their operations and cash flow operations without having to wait weeks or months for customer payment on open invoices.
Why delay paying bills, making repairs, hiring drivers, and expanding your fleet to grow your business when you can quickly access capital now by converting your main business asset - your accounts receivable - into cash, all without having to get a loan?
Read on to learn why freight factoring has become a trusted solution for successful owner-operators and fleet owners throughout the trucking industry.
Invoice factoring describes the purchase of outstanding invoices (accounts receivable) by a third-party company (the “Factor”) from a business (the “Client”) for a small service fee (called a “Factor Fee” or “Discount Fee”).
Factoring providing Clients with immediate access to funds to better manage and grow their business.
The factoring company, or Factor, takes ownership of the invoice, and seeks payment from the Client’s customer (called the “Debtor”). In industries, such as transportation, where it is common for there to be a delay between invoicing and customer payment, factoring is a reliable and trusted financing solution.
- Factor purchases your outstanding invoices in exchange for a small service fee, providing you with instant capital.
- Factor takes ownership of the invoice and seeks payment from the debtor (your client).
- Factor collects payment from the debtor while you focus on running your business!
The History of Factoring
Invoice factoring is not a new concept. The practice can be traced back to England as early as the 14th Century and was introduced to America in 1620 with the arrival of the pilgrims.
Over the years, factoring has evolved to become a trusted and reliable solution for small businesses that need immediate access to capital for managing operations and promoting growth and is a very common and accepted business practice in the transportation industry.
Freight Factoring and Trucking
Owner-operators and fleet owners have worked with respected factors like Match Factors for decades to access assets for their businesses without going into debt via a traditional bank loan.
Drivers transport loads and create invoices as usual, but instead of sending them to their customers, they are sold to a factor to take over billing and collections. The factor then collects on the invoices and keeps a small percentage (called the “Factor Fee”) of the overall total.
Rather than wait the standard 30, 60, or 90 days for payment, fleet owners and owner-operators have immediate access to capital for their business operations.
How Factoring Benefits Businesses
Factoring provides companies with immediate access to capital for paying business expenses and investing in growth.
Rather than waiting 30, 60, or 90 days for payment on services rendered, or seeking a bank loan that is dependent on your credit and comes with interest, factoring offers companies the ability to make operations decisions today instead of waiting months for payment on accounts receivable.
Fleet owners and owner-operators can immediately allocate funds towards expenses including utilities, maintenance, payroll, fuel, taxes, compliance fees, and additional trucks and drivers for greater business growth and profit.
You also benefit from an experienced staff that understands your industry and can focus on resolving open invoices, so you don’t have to. Freight factoring offers additional advantages for truckers including personal service, discounts on fuel, free customer credit checks, and convenient online account access, 24/7.
- Stop waiting to get paid-- factoring provides you with same day funding.
- Factoring removes the need for costly bank loans and high-interest credit card payments.
- Factoring allows you to begin growing your business immediately.