Many new truckers use factoring to get their business off the ground. You may not have heard of it before, but it is pretty prominent in the business world. In fact, it is actually pretty popular in the trucking industry. I plan on using a factoring company to fund my trucking company in the beginning. I’ll start with a little background knowledge in case you don’t know what it is.
What is factoring
Factoring is the act of selling your invoices to a factoring company in exchange for instant funding (minus their fee). For example, say I bill a customer for a load that I hauled. After I send the invoice out, they will usually, pay in 30-60 days, though sometimes it can be even longer! This is difficult when starting out because trucking isn’t cheap. Factoring helps in this situation.
As soon as I deliver the load, I will send the signed bill of lading, load confirmation, and any other supporting documents to the factoring company. They will then determine if the load is factorable. If it is, they will send me the money within 24 hours in exchange for the invoice.
The fee that I was able to secure is 4% for non-recourse factoring. This basically means that I am not responsible if the customer does not end up paying the invoice later on down the road.
The 4% fee means that they keep 4% of the invoice total in exchange for factoring the load. If you still don’t follow, you can read some more about freight factoring here:
More about my factoring agreement
Like I said before, I went for nonrecourse factoring. It’s easier, and being a new company, it’s ideal. If a customer doesn’t pay, I don’t have to worry about it. The fee is a bit higher, but it’s well worth it in my opinion.
The company that I went with also offers “spot factoring”. This simply means that I am not bound by contract to factor a specific amount or all of my receivables. Again, the fee is a little higher for this, but it’s more flexible and better suited for my situation. They also have an online system and even an app that allow me to quickly and easily upload the documents. The process is streamlined and I can get my money quicker.
Hopefully I only need to factor for the first three months or so. The biggest problem that small trucking companies and owner operators have is cashflow. Many get into the trap of factoring their freight bills forever, and losing alot of money in the process.
That’s it for now about my factoring situation. I’ll hopefully be deciding on a truck this weekend. I may post once more before the end of the week, but if not, I’ll be updating when the truck is sorted out. Hopefully some pics too!