Part Two: How Fright Factoring Works
This is the second article in our three-part series on how to get started with freight factoring. Read the first installment here.
How Factoring Works
Factoring costs you a percentage of the invoice (called the “Factor Fee” or “Discount Fee”), and can range anywhere from 1% to 5%. For many, the benefits of factoring far outweigh its cost.
Without having to deal with the headache of collecting invoices and waiting for payment, factoring provides you with prompt invoice payment and positive cash flow.
The Six Steps of Freight Factoring
- Customer places load order.
The first step in the transportation factoring process is for your customer to coordinate with you hauling their freight. In the transportation industry, your customers will consist of brokers, freight forwarders, or shippers.
- Move your freight.
The second step is for you to haul freight for your customer. We strongly encourage you to verify your customer's credit before you move any freight.
Established factors like Match Factors often offer free credit check services to clients to minimize your risk and exposure.
- Submit invoices to your factor.
For the third step, submit your invoices to your factor. You will bill your customer in the usual way, however you send your freight bills to your factor instead of your customer.
Match Factors offers a variety of invoice submission options, including Transflo, portal upload, fax, email, FedEx and walk-in service!
- Factor provides invoice advance.
Once the factor receives your invoices, they will provide you an advance. Match Factors funds clients in the same day or within 24-hours upon receipt of your invoices, depending on your funding preference (check, wire, ACH, Comchek, fuel card, etc.).
- Factor submits invoices to client.
After you receive your funds, your factor will forward your invoices to your customer. Match Factors submits or mails all invoices to your customer the day we fund you. We don't hold onto your invoices.
As soon as your invoices are submitted to your customer, we will begin the collections process.
- Your customer pays the factor.
The transportation factoring process is complete once your factor receives invoice payment from your customer. In the transportation industry, the typical turnaround time for invoice payment is 30- 45-60 days.
Our recourse policy is 90-days, which means we have a three-month period in which we try to collect your invoice payments.
Getting Started with Factoring
Applying to become a factoring partner has never been easier. Simply fill out and submit your application, and we will confirm details such as legal ownership, current outstanding invoices, and whether any accounts have already been purchased by another factor.
If you’re approved, invoices can be factored and funds advanced within the same day.
If you are new to freight factoring, here are a few terms and their explanations to help you better understand the process and benefits of factoring with Match Factors.
- 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 can range anywhere from 80-98%.
- Factor Fee/Discount Fee/Service Charge
Factor fees/discount fees/service charges are the percentage of the total invoice amount that is charged to the company factoring its accounts receivable. Factor Fee plans vary with each Factor.
The Factor is the company that purchases the accounts receivable from the Client.
The Client is the company that sells its accounts receivable to the Factor, thereby receiving immediate working capital.
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.