What to Look for When Choosing a Factoring Company
So, you know freight and you know trucks, but do you know factoring and how to identify and choose the best freight factoring company for your business needs?
You may have heard the term, or may even have employed a factoring company, but do you really know what freight factoring is? Or what qualities to look for in a company that makes it one of the best freight factoring companies for your trucking business? Let’s go over some basics to ensure you’re set up for freight factoring success!
Getting Started: How To Distinguish Top Factoring Companies From the Rest? What should you look for when choosing a factoring company?
When deciding on a factoring company, it’s important to remember — not all factoring companies are alike! Choose a reputable and ethical company that understands your business and accommodates your specific needs.
Factoring is a service whereby a company buys your receivables, in this case, invoices for loads. They buy the load for a discount, get you paid quickly, and then the factor waits to get paid by your customer, which in this case is the broker or shipper. The factoring company makes money on the spread between what they pay you and what they get paid. That’s factoring in a nutshell.
Sounds great, right? It is, or rather it should be great, but that’s not always the case.
There are a lot of details you should be aware of to really know what factoring is, and what exactly you’re getting into. Many people, especially owner-operators, think all factoring is created equal, and shop on rate alone.
To help you narrow your search, we’ve pulled together the top 5 tips to consider when choosing a factoring company:
1. Flexibility – Can you factor only the invoices you choose? Some factoring companies require a minimum number of invoices or a minimum volume each month. Be sure to ask about this upfront because there may be instances where you only want to factor your slow paying customers. It’s best to choose a factoring company that allows flexibility so you can pick and choose the invoices you want to factor.
2. Industry Knowledge – Does your factoring company understand the trucking business? It’s important to choose a freight factoring company that understands the demands you face in the trucking industry. Does a local or national Trucking Association endorse your factoring company? Your factoring company should know the ins and outs of your business and offer flexible solutions and discount programs tailored to your needs.
3. Fuel Cards – Is the factoring company offering a FREE fuel card? Fuel is the most significant expense in trucking and your factoring company should provide you with a FREE fuel card. Choose a factoring company that has a fuel card so you can save every time you fill up.
4. Customer Service – Is your factoring representative going to be available when you need them? It’s imperative to choose a factoring company that provides 24 hour online account access so you can see exactly where your funds are in the factoring process. If a factoring company can’t provide online access to your account, they may be lacking critical tools to support your business. Ask the company upfront how you can access your account, and ask for their hours of operation. Are they open evenings and on Saturdays? You don’t work 9-5, and neither should your factoring company.
5. Recourse vs. Non Recourse – Does the factoring company offer a Non-Recourse Agreement? There are two major types of accounts receivable factoring- recourse and non-recourse. Factoring with recourse means the client must buy back an invoice from the factoring company if the invoice is not paid within a certain number of days. Alternatively, non-recourse factoring means the factoring company incurs all the risk for non-payment of an invoice. Does the factoring company offer non-recourse agreements for certain invoices? You may want that extra protection and peace-of-mind that a non-recourse agreement can offer, so it’s important to choose a factoring company that will work with your individual needs.
We hope you’ve enjoyed these tips and feel more confident about picking a freight factoring company! Check back on our blog for more tips and tricks to help you grow your business with factoring.