What is Freight Factoring?
Freight factoring, also known as trucking factoring or freight bill factoring, is a financial service that helps trucking companies improve cash flow by converting unpaid invoices (accounts receivable) into immediate cash. This allows trucking businesses to get paid quickly for completed jobs instead of waiting weeks or months for clients to pay their invoices.
How Freight Factoring Works:
1. Deliver the Load: A trucking company delivers freight for a client and issues an invoice for the service.
2. Submit the Invoice: The trucking company sells the unpaid invoice to a freight factoring company at a discounted rate.
3. Receive Payment: The factoring company pays the trucking company a significant portion of the invoice amount upfront (usually 80–95%).
4. Client Payment: The client eventually pays the full invoice amount to the factoring company.
5. Final Payment: Once the client pays the invoice, the factoring company deducts its fees and releases any remaining funds to the trucking company.
Benefits of Freight Factoring:
• Improved Cash Flow: Immediate access to funds allows trucking companies to cover fuel, maintenance, driver wages, and other operating expenses.
• Credit Management: Factoring companies often evaluate the creditworthiness of clients, reducing the risk of non-payment.
• No Debt Incurred: Unlike loans, factoring isn’t debt; it’s simply the sale of receivables.
Costs of Freight Factoring:
• Factoring Fees: The factoring company charges a percentage of the invoice, typically ranging from 1–5%, depending on factors like invoice size and client payment terms.
This service is widely used by small and medium-sized trucking companies that may lack the financial reserves to handle delays in client payments.
