Insight into Freight Factoring and How It Works

 Running a freight company is not a cakewalk. You need to be much more than a manager or an owner. You have to do the tasks of an accountant, human resource department and also the marketing department. Freight factoring or trucking factoring makes the job easy for you by helping you manage your cash flow in an effective manner. 

Insight into freight factoring 

The business of freight is quite simple. You need to pick up goods at a location, deliver them to the other and the broker or shipper will pay you for the service. Your profit is the amount you get paid excluding the costs for delivering cargo. However, it is important to note that you do not get paid for the profit straight away. The average as per the industry standard is 40 days and certain companies can take around 90 days to deliver invoices. This is quite a long time to wait for payment. Freight factoring permits you to sell that invoice to a factoring company. You get paid for the job immediately in exchange for a service fee. You can then collect from the broker or shipper whenever they make payment. 

Recourse and non-recourse factoring 

Recourse accounts for a clause in your contract with your factoring provider that permits them to collect from you in case your customer refuses to pay or does not pay promptly. All providers of factoring services have similar clauses.

Non-recourse implies that in case your customer goes out of business or declares bankruptcy between the time you submit invoice and when they are required to pay the factoring company, the company won’t try to collect from you. This scenario is a rare one. Non-recourse does not imply that your provider won’t collect the money from you in case your customer does not pay. It only offers coverage in a particular case cited above. 

Freight factoring companies make their money by bearing the risk of a later payment for a fee. When your customer is not able to pay on time, the factoring service will recourse for you. This implies that they will collect from you till the company is able to make payment. Every factoring company has a certain version of a recourse clause mentioned in their contract and it is important that you read and understand the clause prior to signing it. 

Working of freight factoring 

The fundamental task done by freight factoring is reducing the time you are required to wait for payment for the task that you have already completed. The following steps are followed: 

  • The freight is hauled from one place to the other
  • The paperwork is submitted to the factoring company instead of the broker
  • Payment is provided to you
  • The factoring company is paid to by the broker in 15 to 30 days.

Tasks of a freight factoring company

Fundamentally, freight factoring companies take on certain accounts receivable functions of your business. Usually, they will invoice brokers for you and the broker will pay them and not you. This is the reason they charge a fee for their service. 

Best freight factoring services will also do things like carry out broker credit checks for you. Since they collect from the companies or brokers on your behalf, you get time to pay attention to the other important aspects of your business. Thus, your business efficiency improves. 

Certain companies also have a mobile app for invoice factoring. This allows you to submit and track your freight factoring from almost any device that is connected to the internet. All this helps in making things convenient and hassle-free for you. 

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