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Key things to know about freight factoring

Key things to know about freight factoring

Freight factoring is one of the most beneficial services for the trucking industry. It helps trucking companies get their payments from their brokers much faster. Doing so ensures they work smoothly without worrying about their outstanding payments. Freight factoring is a critical concept people must understand if they are in the trucking sector. What follows are a few details about freight factoring, like what it is and how it works.

What is freight factoring?
Freight factoring is a convenient system for trucking businesses. It lets them give their invoices to factoring companies and immediately receive the payment. Without a factoring company, a trucking business would have to wait months or weeks wondering when their clients or customers will send their outstanding payments.

A factoring company overcomes this problem. It instantly pays the trucking business once it hands over the invoice to them. Of course, they also charge a small fee for this service.

How does freight factoring work?
Here are a few details about freight factoring to better understand how the whole process works:

  • First, a trucking business approaches a factoring company for its services. Based on their requirements and business specifics, the factoring company designs a contract for the trucking firm.
  • After approving the contract, the trucking business notifies its brokers or customers about the factoring.
  • Next, the trucking firm carries out its business as usual – by booking a load and signing a bill of lading during both pickup and delivery. Once they deliver the load, the driver receives the signed invoice for the delivery.
  • The trucking company now gives the bill of lading, a copy of the invoice, and other required paperwork to the factoring company.
  • The factoring company pays the trucking business for the delivery. It also receives a small fee from them for the service.
  • The trucking business usually receives payment from the factoring company within 24 hours of submitting the invoice. On the other hand, the factoring company waits 30 to 90 days for the broker to send their payment for receiving the load.

Types of freight factoring
There are two common types of freight factoring services:

Non-recourse
The trucking company is not held responsible if its client fails to pay for their delivery. Instead, the factoring company bears the loss. However, the factoring company charges a higher fee for this arrangement.

Recourse
The trucking company is responsible if its client does not pay for the delivery. A part of their payment will be kept reserved until the factoring company receives the full amount from the client. The factoring company charges a lower fee in this scenario because it bears lesser risk.

Benefits of freight factoring
The trucking industry enjoys many benefits because of freight factoring:

Ensures smooth working
A factoring company pays the trucking firm immediately so it can carry on its tasks without any financial challenges. It benefits small or new trucking firms operating on low capital.

No long-term contracts
Most factoring companies do not design long-term contracts for trucking businesses. So, if a trucking business wishes to discontinue the factoring service with a particular company, it would not have to wait for long.

Additional benefits
A lot of factoring companies also offer additional services and benefits to trucking companies. These include discounts on fuel, free credit checks for new clients, assistance in the insurance process, and more.

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