Freight Factoring Additional Information

The Ultimate Guide to Choosing The Best Factoring Company for Trucking

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Part 3: Additional Information About Freight Factoring



Introduction

Part 1 and 2 of this guide provides the basics of freight factoring and details the key topics to be thought through when selecting a factoring company. Part 3 identifies peripheral considerations and provides resources to aid your decision making process.

Selecting the right freight factoring company to manage your trucking business cash flow needs is not an endeavor to take lightly. Determining how to judge trust with your factor and what additional value they bring to your business are the final thoughts to be contemplated prior to making a commitment.

The 3 appendixes included at the end of the guide provide helpful resources to aid your pursuit of finding and selecting the best freight factoring company for your trucking business.


Chapter 6

How to Judge Trust with Your Freight Factoring Company

A good working relationship with your lender is critical to the overall success of your trucking company. The final piece of the puzzle when selecting a factoring company is to determine trust. Although this can be quantified to some degree, it is mostly a judgement call.

Learning Objectives

After reading this chapter, you should be able to:

  • Understand the value of transparency when choosing a factoring company
  • Recognize the value of checking a factoring companies references before you choose them
  • Understand the value of a factoring company that can deal with your customers professionally and efficiently
  • Gauge how reputable and trustworthy a factoring company is before you choose them
Definitions

Before reading this chapter, you should know the definitions of:

Notification: The process where the factor legally notifies a client’s customer that payments for the client’s work should be made to the factor. This is usually done through the sending of a Notice of Assignment (NOA).

Non-Notification: An amount of money advanced to the client before the load has been delivered.

Verification: An amount of money advanced to the client before the load has been delivered.

 

References

One of the first and easiest measures to take when assessing the trust factor of a freight factoring company is to to make sure they are reputable by checking their references . This can be done by reading their online reviews, testimonials, or by asking fellow truckers. When checking references, there needs to be an assurance that people are saying positive things about the factoring company and that they actively resolve any complaints or issues that arise.
 

Is Your Freight Factoring Company Truly Transparent?

Transparency is critical when working with a factoring company, there should be no secrets and no surprises. The two most important areas of transparency are process and pricing.

Process Transparency

A good factoring company will keep communication open throughout the factoring process. The client should always be notified if their funding has been placed on hold or if their invoices could not be verified. There should be no surprises.

Pricing Transparency

When it comes to pricing, transparency is of the utmost importance. A good factoring company will make sure their client understands everything as it relates to the cost of factoring. Unfortunately, not all factoring companies are upfront regarding costs. There are a few practices that businesses need to look out for when judging the honesty of a factor’s pricing.

It is not unheard of for a factoring company to quote a low rate, then neglect to mention the many fees that are then added on. Always be cautious when offered an exceptionally low rate. After all fees are accounted for, the rate could end up being double or triple. If the rate sounds too good to be true, it likely is.

Another practice to look out for is factoring companies that charge a low monthly rate, but then charge for two months when the invoice is paid in a month and one day. Additionally, some factoring companies require monthly minimum factoring volumes. In this case the client will be paying for financing even if they don’t need it.

Hidden penalties are yet another practice to be aware of. The client should always know what triggers these penalties so they can avoid them. If the penalties seem unfair, look for a different factoring company. After a while, a trucking business will get a sense of what fair terms look like.
 


Taking Care of Your Customers

Will the Factoring Company respect your most valued Partnerships

A professional factoring company knows the importance of your customers and places great effort in maintaining healthy, positive relationships.

Understandably, one of the most common concerns about using factoring is how it will affect a client’s customer relationships. Most successful businesses grow by carefully serving their customers well and carefully managing their customer relationships. A professional factoring company knows the importance of this and places great effort in maintaining healthy, positive relationships. A professional and reputable factoring company could even improve the working relationship with their client’s customers’ accounts payable departments. Professional, well-mannered communication is one of the hallmarks of a good factoring company. It is in the best interest of the factoring company to deliver the highest levels of expertise and service, not only to their client’s company but also to their client’s customers.


Notification

As part of the invoice factoring process, all parties subject to the transaction must be notified. Notification occurs when the lender notifies their client’s customers that their payments for the services provided by the client should be paid to a third party lender (the factor).

A good factoring company will handle this process without complicating client-customer relations

How smoothly notification goes with a client’s customers depends mainly upon the experience, methodology and professionalism of the factoring company that has been chosen. A good factoring company will handle this process in a straight forward professional manner without unnecessary complications to the client – customer relationship. A client’s customers are likely familiar with factoring companies already. Most customers actually appreciate the professionalism and experience of working with a factor’s accounts receivable department.


Verification

All factoring companies will have a verification process in which invoices, bills of lading and rate confirmations are validated prior to advancing funds. This involves a direct relationship between the factoring company and the client’s customers. It is highly critical that the client is able to trust the factoring company to manage a healthy relationship with their customers. A professional approach based on respect and cooperation must be taken by a factor to develop non-disruptive interaction with a client’s customers.

 

Summary: How to Judge Trust with Your Freight Factoring Company

It is most important that a trucking business is able to trust its factoring company. This trust is based on the factor’s ability to manage positive cash flow through all circumstances while maintaining a healthy relationship with the trucking company’s customers. Professionalism, transparency and the factor’s ability to develop non-disruptive interaction with your customers is essential.


The following check list represent the three most important considerations when judging trust with your intended factoring company:

Check List

  • Is the factoring company transparent with their invoice factoring processes?
  • Is the factoring company transparent with their pricing structures?
  • Is the factoring company professional and efficient when dealing with your customers?


 

Chapter 7

Additional Benefits with Freight Factoring

For many trucking companies, freight factoring is an ideal strategy to resolve the immediate need for continual funding but falls short of meeting the needs created by other resource demands. Every day a trucking company hauls freight, fuel expenses, over-the-road costs and the cost of equipment must be met. A factoring company that specializes in trucking will often provide additional features, benefits and services to assist managing these issues and protect their client’s bottom line.

These can include the following:

  • Fuel Discount Cards
  • Cash Advance
  • Online Credit Search Tool
Learning Objectives

After reading this chapter, you should be able to:

  • Recognize the value of additional benefits and services that a factor can provide.
Definitions

Before reading this chapter, you should know the definitions of:

Fuel Discount Cards: A card(s) issued to a trucking company that provides a discount on the cost of fuel.

Cash Advance: An amount of money advanced to the client before the load has been delivered.

 

Fuel Discount Cards

Huge Savings from Your Freight Factoring Company

Large trucking companies have the leverage to negotiate substantial fuel discounts and gain a competitive advantage in the market. To compensate and remain competitive, small and medium size fleets must finds the means to do the same by using fuel discount cards.

Look for: freight factoring companies that provide Discount Fuel Cards at major full service truck stops.

With significant discount pricing, trucking companies can save $1,000s on the cost of fuel every month. In addition, fuel cards provide an easy reporting system to track and analyze fuel expenses, driver progress and spending activities. Further, they allow for daily cash advances to provide drivers the ability to access cash as authorized by the company owner. The best fuel card programs offer credit terms, allowing trucking companies to easily manage fuel expenses whether it has one truck or a fleet of hundreds.
 



Figure 7-1: Hallmarks of a Robust Fuel Discount Program
 


Freight Factoring: Cash Advance

Advanced Funding Before You Deliver Your Load

Freight factoring provides access to immediate cash once a load has been delivered. However, many trucking companies experience a cash shortage and require funding before delivering a load to cover over the road expenses. A cash advance option from your factoring company serves this purpose.

Look for: Freight Factoring companies that provide Cash Advance options on loads in transit.

Here’s how it works; once the driver has picked up the load, forward the load confirmation to the factoring company. A percentage of the value of the load (up to 50%) is funded the same day.

 


Figure 7-2: Advance Funding for Over-the-Road Expenses
 

Credit Search

Using Freight Factoring Resources to Mitigate Bad Debt

Every load you haul is a source of revenue. It is also a potential credit risk. Before you haul a load acquired from a load board or your first load from a new customer, it is best practice to run a credit search. View payment history and the business credit rating to verify your debtor’s ability to pay and help avoid bad debt.

A reputable freight factoring company will have an online tool to perform quick and easy credit searches. The best factoring companies provide unlimited search capability as a free service.
 

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Figure 7-3: Example Search Result from a Factoring Online Credit Search Tool
 


Summary: Additional Benefits with Freight Factoring

The primary purpose of a freight factoring company is to provide reliable cash flow to support a strong driver pool, keep trucks operational and hauling loads thereby generating revenue. To combat competition, trucking companies needs to embrace modern technology to comply with regulations, manage rising operating costs, track shipments and improve operational efficiency.  However, to get the best value from your financial partner, freight factoring should provide much more. A reputable freight factoring company will have strong connections and relationships within the industry. The ability to leverage these connections to provide additional benefits to its trucking customers is a strong indication of a good freight factoring company to work with.

The following check list identifies some of the key benefits to investigate.

Check List

  • Does the factoring company have a fuel card program?
  • Does the factoring company provide cash advances on loads in transit?
  • Does the factoring company have a credit search tool available to the client?

 

Chapter 8

Frequently Asked Questions

What is freight bill factoring?
How does freight factoring work?
How can freight factoring help my trucking company?
How do I get started?
How long does it take to get initially funded?
After an invoice is submitted, how long does it take to receive advance funds?
How to submit invoices and documentation for funding?
How do I determine the status of my factoring account?
Can freight factoring save my trucking company money?
Who qualifies for freight bill factoring?
Can freight factoring fund my trucking business even after the bank told me NO?
I have had a past bankruptcy; is freight factoring still an option?
How is freight factoring different from a business loan?
How does freight factoring help my start-up company?
How can freight factoring help keep my trucks on the road?
How can freight factoring help my growing business?
Can freight factoring help my business through a transition?
What happens if one of my trucking customers is unable or unwilling to pay their invoice?
Why is it important to deal with creditworthy customers and how do I find
Who will call my customer to collect payment?
How do my customers know to remit their payments to a factoring company?
What will your customers think if you use a freight factoring company?
How to leave your freight factoring company?



Appendix A

7 Steps to Choosing a Factoring Company 

The following infographic is a quick reference guide showing the recommended information gathering and decision making process for choosing the best freight factoring company to partner with.   



 

Appendix B

Master Check List

Facilitating the process of selecting the best freight factoring company

When researching the best freight factoring company to work with as your financial partner, it is recommended to follow a defined check list of considerations. By adhering to the following list, you will be able to extract pertinent information from candidate factoring companies and compare results facilitating the process of selection.  


Types of Factoring

  • Does the factoring company provide the type of factoring that’s right for your business?

Factoring Fees

  • Does the factoring company provide a pricing structure that’s right for your business?
  • Does the factoring company disclose all of their additional fees?

Speed of Funding

  • Does the factoring company have quick and simple to use systems for document submission to ensure you are paid quickly and conveniently?
  • Does the factoring company provide dedicated customer service with trucking related experience to complete funding in the most expedited fashion?
  • Does the factoring company provide same day funding?
  • Does the rate for the factoring contract go up after 30 days? Some factoring companies that run into problems with invoices may wait till after the 30 day mark to solve the issue, making you pay more.

Service

  • Does the factoring company understand and have experience in the trucking industry?
  • Does the factoring company offer online systems that allow you to track customer payments in real-time, submit invoices, review Days Sales Outstanding (DSO) and customer (broker) credit information
  • Does the factoring company provide full transparency with online accounting and regular reports?
  • Is the fee structure easy to understand and simple to calculate?
  • Ensure there are no hidden fees or surprises.
  • Ensure there are no delays in the funding process.
  • Does the Factoring Company's website have good testimonials and case studies?
  • Ask the Factoring Company for references. Speak to their existing customers (your fellow truckers) and ask about their level of satisfaction.
  • Does the Factoring Company provide a dedicated account manager?
  • Is their customer support service prompt and helpful?
  • Does the Factoring Company communicate with your customers in a courteous and professional manner?

Factoring Agreement 

  • Does the factoring company offer the advance and reserve at a competitive rate?
  • Does the factoring company have termination clauses that make it difficult to stop factoring?
  • Does the factoring company require monthly minimums
  • Does the factoring company identify credit limits before you sign the factoring agreement?
  • Does the factoring company wait until all the contracts have been signed and returned before filing a UCC-1?

Additional Benefits 

  • Does the factoring company have a fuel card program?
  • Does the factoring company provide cash advances on loads in transit?
  • Does the factoring company provide equipment financing?
  • Does the factoring company have a credit check tool available to the client?

Trust 

  • Is the factoring company transparent with their invoice factoring processes?
  • Is the factoring company transparent with their pricing structures?
  • Is the factoring company professional and efficient when dealing with your customers?



Appendix C

Glossary of Terms

Common Terms associated with Freight Factoring

To properly understand and communicate factoring concepts, it is best to be familiar with the common terms associated with the funding practice. Following are the terms and definitions used throughout this guide.


Account Debtor: A company that purchases products or services from the client and remits payment of invoices that are factored by the client. Also known as the customer.

Accounts Receivable: Outstanding money that is owed to the client by the client’s customers. This money is usually in the form of an invoice that is due to be paid in a certain period of time.

Accounts Receivable Factoring: Also known as factoring.

Advance: The amount of money that the factoring company advances to the client when they buy their invoice. The advance is usually a percentage of the gross invoice value and is advanced to the client soon after the invoice is purchased.

Advance rate: The percentage of the invoice that will be advanced to the client. This rate often varies between 70% and 95% of the gross invoice value.

Asset Based Loan (ABL): A short term loan where a company’s assets such as inventory, equipment or accounts receivable are secured as collateral.

Audit: A financial review carried out to ensure that the conditions of the factoring agreement are being met.

Bad Debt: Debt that is unlikely to be collected. Bad debt is often payed for out of the clients reserve account and or sold to a collections agency.

Cash Advance: An amount of money advanced to the client before the load has been delivered.

Client: A factoring client who sells their invoices to a factoring company. Do not confuse this with term customer.

Closing costs: Costs involved in becoming a factoring client. Some factoring companies have no closing costs. Other factoring companies could charge the cost as a percentage of the total factoring line amount. The closing costs are also referred to as the setup costs.

Collections: Payments that the factor receives for invoices factored by the client.

Commercial line-of-credit: A pre-approved amount of money issued by a bank to a company that can be accessed by the borrowing company at any time to help meet various financial obligations.

Concentration: The maximum amount for which a factor will fund on a single customer in a client’s portfolio. This is often expressed as a percentage of the factoring volume for a given customer. Concentration is used as a risk management measure to ensure that a large majority of a client’s portfolio is not represented by a single customer.

Confidential Factoring: A type of factoring where the client’s customer is unaware that the client is factoring their invoices.

Construction Factoring: A form of factoring designed specifically for companies in the construction industry.

Contra Account: A client account where two companies are both customers and suppliers of each other. This is often confusing for the factoring company.

Credit Limits: The factoring limit that is placed on each of a client’s customers by a factor. This is usually determined by their credit rating and possible concentration limits.

Credit Protection: A facility that covers the client against potential losses for unpaid invoices. Usually in the form of a credit insurance policy.

Credit Terms: A commercial sale that allows the customer to pay a certain number of days after an invoice is submitted.

Current Account: The total amount of funds paid to a client including any charges at any given time.

Customer: A company that purchases products or services from the client and remits payment of invoices that are factored by the client. Also known as the Account Debtor.

Day sales outstanding: A calculation used by a company to estimate the average time it takes their customers to pay.

Debtor Financing: Another term for factoring. Mainly used in Australia.

Dedicated Account Manager: A client’s main contact with a factoring company and the manager of a client’s factoring account. A dedicated account manager is used by a factoring company in order to build a relationship with the client to better understand their needs.

Disapproval: When the funding of an invoice is not approved.

Dispute: A situation where an invoice is not paid by the customer due to a problem with the product or service.

Export Debt: Debt that is owed to a client from a customer located overseas.

Factoring: A form of business funding where a company sells their invoices to an intermediary called a factoring company in order to finance their accounts receivable.

Factoring Agreement (Factoring Contract): A formal contract issued to the client that states the terms of the factoring agreement.

Factoring Company: A company that provides factoring services.

Factoring Charge: A charge made to the client for administering their invoices, collecting them and processing them.

Factoring Fee: The fee charged by the factoring company to finance a client’s invoices. This fee is usually a percentage of the gross value of an invoice for a certain period of time (e.g. 1.59% for 90 days).

Factoring Line of Credit: A form of factoring where the client only pays fees on funds drawn. This usually includes a small administration fee to manage the client’s accounts receivables. However, the factoring rate is much lower since it is charged by the day. (e.g. 0.022% perday + 0.5% admin fee)

Flat Fee Factoring: A form of factoring in which the client is charged the same flat rate on all invoices aging up to a specific number of days.

Flex Factoring: A form of factoring in which the client is charged a rate per date range increment. (e.g. 0.49% per10 day increment)

Freight Bill Factoring: A form of factoring specifically designed to serve transportation carriers and freight brokers. Also referred to as freight factoring.

Fuel card: A card issued to a trucking company’s drivers that provide a discount on the cost of fuel.

Funding Limit: The maximum amount of money that a factoring company can fund to a client’s account.

Funding Period: The time period from the purchase of the invoice to thecustomerpaying the full invoice amount.

Hard sign off: When the customer signs a document verifying the invoice and committing to full payment without any credits deducted, or contested obligations.

Invoice Discounting: Another term for factoring.

Invoice Factoring: Another term for factoring.

Lockbox: A bank treasury management system designed to receive payments and deposit them into an account as quickly as possible. Most lockbox’s systems also scan documents and provide online systems for viewing and management.

Medical Factoring: A form of factoring designed specifically for medical companies.

Non-Notification: A form of factoring where the customer is not notified that their payments should be paid to a factor. In this situation the customer believes they are paying the client when in fact they are actually sending payments to the factoring company

Non-Recourse: A form of factoring where if a client’s customer doesn’t pay, the factoring company will absorb the cost. Most factoring companies that provide non-recourse factoring are only willing to pay if the client’s customer files for bankruptcy or declares insolvency.

Notice of Assignment: A notice that is sent to customers notifying them that the client’s invoices should be payed to the factor.

Notification: The process where the factor legally notifies a client’s customer that payments for the clients work should be made to the factor. This is usually done through the sending of a Notice of Assignment (NOA).

Purchase Order Financing: A type of funding that finances the supplier costs associated with a purchase order of finished goods.

Rebate: The amount that is paid to the client when the client’s customer pays the invoice. This equates to the reserve amount minus the factoring fee.

Recourse Factoring: A form of factoring where if the client customer doesn’t pay, the client is liable to pay back their factor.

Reserve Account: A client account where a small amount of each factored invoice is deposited. This is usually used as insurance in case one of a client’s customers doesn’t pay.

Reserve Amount: The percentage of the invoice that is deposited into the reserve account.

Same Day Funding: Getting funded on invoices that the client submitted that same day. 

Schedule of Accounts: It’s a form that is used by the client to submit their invoices to their factor for funding.

UCC: Stands for Uniform Commercial Code. It is a uniform act that harmonizes the law of sales and commercial transactions in the 50 states.

Verification: The process of checking an invoice’s validity, amount, and payment address. This is usually done through a phone call with a client’s customer.

Working capital: The capital of a business that is used in its day-to-day trading operations, calculated as the current assets minus the current liabilities.


Copyright 2018, Accutrac Capital Solutions Inc.