The 5 C's of Factoring
If you have ever pursued a line of credit in business or your personal life, or applied for a loan, you may be familiar with the 5 C’s of Credit: Character, Capacity, Capital, Collateral, and Conditions. While lenders may use this criteria to scrutinize your ability to make good on your debt, freight factoring approaches the 5 C’s a little bit differently.
Below is a comparison of the 5 C’s when it comes to freight factoring vs traditional credit and loans. Unlike loans and credit, freight factoring is tailored to meet the needs of trucking industry professionals, providing convenient and efficient advances on invoices as opposed to lengthy applications for a bank loan, or line of credit.
Traditional Credit or Loan: Often lenders will evaluate an applicant’s background and character to determine eligibility for receiving capital. Your credit history will also come into play, so people with bad or no credit may struggle to get approval.
Freight Factoring: Whereas the traditional lender or creditor will scrutinize your credit history to determine if you’re a good candidate for capital, freight factoring companies place more emphasis on your clients’ ability to pay. Regardless of your credit history, if your customers are dependable, then factoring is an option.
Traditional Credit or Loan: Lenders typically want to know how borrowers will pay back their loan, and will request financial documentation as proof that you will have the resources to do so.
Freight Factoring: As before, capacity is largely dependent on the quality of your clients and the amount of transporting you do. Capacity increases with your number of invoices because it’s work you’ve already completed and you’re simply awaiting payment.
Traditional Credit or Loan: The bank or creditor will want to know how much of your own capital will be invested in your business when assessing your eligibility for a loan or line of credit because people who invest a lot of their own money are less likely to default on a loan and make better candidates for borrowing money.
Freight Factoring: Again, emphasis is placed on your customers instead of you. As long as you transport loads for dependable companies, your capital isn’t really considered in freight factoring.
Traditional Credit or Loan: Should your business fail, or you default on the loan, the lender will need some way of recovering the loan. This will be through your assets tied to the loan (e.g. car tied to car loan).
Freight Factoring: Match Factors provides unlimited complimentary credit checking services and recommendations to ensure that you work with the most reputable and dependable shippers so that your business can succeed.
Traditional Credit or Loan: Lenders will want to know what the money is being put towards to ensure it is a wise use of funds and likely to provide a positive return.
Freight Factoring: With freight factoring, owner-operators and motor carriers are often trying to access the funds they have already earned sooner so that it can be reinvested into the company and allow for more opportunities.
Learn firsthand why freight factoring is the way to go when it comes to running your trucking company. Call us today and learn more about the Match Factors 95% or greater advance guarantee.