Freight Bill Factoring: A Simple Explanation
When you own a trucking company, you know that it can be hard to manage the financial side of the business when clients take their time paying for jobs you have completed. Having the cash to fund the next job—pay for gas, wages, repairs, and a whole host of other things—is essential if you want to keep your business rolling. One option that will allow you to do this without taking out a loan is by using a freight bill factoring company.
What Is Freight Bill Factoring?
Freight bill factoring is essentially receiving a partial payment on your billed but unpaid jobs via a third party company that gives you the funds to take the next job while waiting for a full payment. These billing go-between companies generally charge a fee of up to 5% to front you the cash while they deal with your customer on your behalf to procure payment. It works like this:
1. You secure a job from a customer and send the details of that job and the customer information to the factoring service.
2. The factoring service will then do a credit check on the customer and either approve or deny your request for freight bill factoring.
3. If approved, you then complete the job for your customer and fax the appropriate documentation to the factoring company to act as a billing service on your behalf.
4. Once the factoring service has received the paperwork, they will direct deposit the agreed percentage (60-90% of the job payment) into your account ready for you to use as they go about billing the customer.
5. Once the customer pays in full, you will receive the balance of the money, minus the factoring company’s fees.
There are a few things to be aware of before you engage the services of a freight bill factoring company:
1. Recourse or Non-Recourse Based: A recourse-based agreement means that the factoring company can come after you for a refund if the customer refuses to pay. Non-recourse agreements allow the trucking company to keep the money fronted even if the customer refuses to pay, forcing the factoring company to pursue payment independently.
2. Repeat Business From Same Customer: Some factoring companies require that once you have initiated a relationship between them and your customer, they will always handle any collections between you and that particular customer on all future jobs. This is written into the contract, so if you do not want that to happen, make sure you are aware of this stipulation.
On the whole, a reputable freight bill factoring company may be invaluable for your trucking business. This service will allow you to take the jobs you want to take whenever they arise, and know that you have a partner on your side that will take care of the billing and keep you in the black.