Freight Factoring Service – A Few Basics To Get Your Head Around

 Freight factoring is not an easy job. There are a lot of terms and conditions in every factoring agreement. But all that at a later stage. Before that, we should understand what freight factoring is and how it works.

Understanding The Definition And Importance Of Freight Factoring

You can understand a freight factoring companies as an intermediary between 2 parties. Freight factoring specialists can shorten your wait period from as many as 90 days to an hour or even less. Yes, a factoring company can get you your payment in exchange for a service fee within an hour or less. 

For example, a customer needs a certain cargo to be delivered to a certain location. The cargo is delivered by the trucking company. Now, instead of seeking payment from the customer, the trucking company chooses to sell the invoice to the best freight factoring company in the area. The freight factoring specialist is going to pay the trucking company the amount that was promised in the invoice. In exchange for this quick payment, a fee will be charged by the freight factoring service provider. Now, the trucking company has performed its duty and has been paid (minus the service fee). They can get back to doing their usual business. The freight factoring company on the other hand has its fee and will now wait for the customer to make the final payment.


Because these payments require a lot of formalities, the industry-standard has become 40 days or more. The payouts that are due to the drivers and various trucking companies can take a lot of time to complete. So, instead of relying on banks or credit cards, the best way out of this situation is to associate with a freight factoring specialist. They will come in, pay the trucking company the due amount, charge a nominal fee for this quick payment, and get out of the transaction. 

How Does Freight Factoring Work? Explained In 6 Easy Steps

  • A customer wants their shipment/product to be delivered to a location X  
  • They hire a trucking company to do this job  
  • Upon delivery, the trucking company sends the relevant invoice and all related paperwork to the freight factoring company
  • The specialist purchases that invoice and the trucking company receives the payment
  • The trucking company pays the factoring specialist the service fee that is due
  • The factoring company collects the payment from the customer at a later stage
  • Now, depending on what situation you are in and the terms of your factoring agreement, there might be a few more steps involved in this entire process. 

When Should You Choose A Freight Factoring Service?

Is This Even The Right Path To Take For Your Company?

To answer these questions, you will first have to resolve a few other points. To determine whether freight factoring is right for your company or not you should first assess the following:


  • Find out whether your customers take a long time to pay you or not 
  • Do you suffer from a lack of cash flow across your company? 
  • Is inadequate cash flow causing obstacles in the way of growing your business? 
  • There must be a few slow-paying customers here and there. Do they cause any kind of problem when you intend to pay your vendors on time?
  • How certain are you about the creditworthiness of your customers?
  • Collection calls take a lot of time. Are you spending a considerable amount of it on these calls?

After assessing all these factors and answering these questions, you will be in a better position to decide whether you should connect with a freight factoring specialist in the city or not. Factoring can offer a lot in terms of not just back-office services but regular cash flow as well. By associating with the right professional, you can service your customers better and expand your business quickly.

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