ExpoCredit

Freight Factoring: All You Need to Know

The current unpredictable economic condition has become a deflector for many trucking companies— large and small— making it challenging to keep pace with operating expenses.

With customers taking more than 30 days to pay receivables, most trucking businesses fall into freight factoring as an alternative to improve their cash flow to restock supplies, conserve vehicles, and effectuate payroll.

With freight factoring, trucking companies get paid immediately after receiving the invoice. But is it right for your trucking company? How does this financial service work? Here’s everything you need to know.

How Does Freight Factoring Work?

Freight factoring does a simple thing: It helps companies solve their cash flow problems. Here’s a truck factoring step-by-step overview made simple:

  • The trucking company delivers the load and issues a receivable due in 30-90 days.
  • Your company request a line of factoring with a trucking factoring company.
  • The factoring company purchases your freight invoices, providing you funds (advance rates are typically 85%).
  • Your customer (debtor) pays the invoice, which is deposited in a temporary reserve account.
  • The factoring company collects the payment, takes the agreed-upon discount of the total freight invoice value, and returns the rest to your business.

 

In the case of ExpoCredit Factoring, there are some additional benefits:

  • Domestic and international A/R financing; your debtors can be anywhere in the world.
  • Receive up to 90% of the value of each invoice.
  • No need for collateral, asset appraisals, or financial covenants.
  • No prepayment penalties.
  • Does not put your assets at risk or require you to give up equity in your company.
  • Can be adjusted up or down according to your needs.

Prevent the risk of nonpayment: Recourse vs. Non-recourse Freight Factoring

In most scenarios, trucking businesses run the risk of nonpayment by their customers. Due to this, trucking factors offer two types of freight factoring services: Recourse or Non-recourse.

With Recourse factoring, your business is liable if a customer doesn’t meet its financial obligations. However, as a way of prevention, truck factoring companies can contact nonpaying customers to collect payments. On the other hand, with Non-recourse factoring, the factor increases the discount fee but assumes the risk in the event of nonpayment.

At ExpoCredit, we assume the risk of collection and payment default with our Non-recourse factoring services. For more information about our financing solutions for trucking companies, contact our team of experts at [email protected]