Freight factoring (sometimes called invoice factoring) and Load Advances are two forms of alternative financing popular with trucking and transportation companies. Both forms of financing products are offered by factoring companies that specialize in the freight, trucking and transportation industry.
Why are they popular?
In fact, even if you've been turned down for a bank loan, your trucking business can still qualify for either alternative financing product. That's because the factoring company bases their decision for funding on the creditworthiness of your customers. Your trucking company's financial history, assets or credit rating don't even come into the equation. If you deal with good, creditworthy customers, your trucking business can qualify for a Load Advance and/or freight factoring.
If I have creditworthy customers, why would I choose a Load Advance or freight factoring?
Creditworthy customers are great. Everyone wants them. So what's the problem?
The problem lies in how long a creditworthy customer takes to pay. Some of your best customers will demand payment terms of 30, 45, 60 or even 90 days. And, that's after you've issued them an invoice.
Before you can invoice your customer, you need to pick up your load and deliver it. Through this entire cycle of picking up your load to finally receiving payment for your invoice, you've got to keep up with operating expenses. Fuel, payroll, maintenance and other day-to-day costs can put a real strain on cash flow.
In fact, some trucking companies don't accept large contract jobs because they can't support the cash flow required to fulfill them.
The difference between a Load Advance and freight factoring
When it takes place: A Load Advance takes place prior to your load being delivered to your customer. It happens when you've picked up freight from a creditworthy customer and are ready to deliver it. Freight factoring takes place after you've delivered your load to your customer and issued an invoice (creating an accounts receivable).