Freight Factoring: Performing Credit Analysis
Factoring companies will not automatically pay invoices from a client’s customers without first conducting a credit check. They will want to gain confidence that a client’s customers are creditworthy and likely to pay. Most transportation factoring companies will request a list of current customers and conduct a credit check prior to signing a factoring agreement. This benefits both the client and the factoring company. Knowing upfront which customers are creditworthy and which are not will eliminate the problem of hauling for a shipper who’s invoices cannot be funded.
A client should know upfront which of their customers’ invoices are preapproved for funding.
Some factoring services will not share this information prior to formalizing a relationship. In an effort to secure a client’s business, they may hold back in revealing which customers they will not buy invoices from. In these circumstances, the client may discover too late that a portion of their customer base is not approved for funding thereby severely restricting their access to funds. A client should know up front which of their customers’ invoices are preapproved for funding.
The best factoring companies will provide additional credit support and a convenient online tool to assist their clients identify creditworthy customers.
Look for:a factoring company that provides a free online credit tool to conduct unlimited credit searches on potential new customers.
This is a useful feature to protect trucking companies by identifying a prospective customer’s credit prior to booking a load. For further assistance, a professional factoring company should have knowledgeable staff that can assist with credit information when needed.
Figure 4-1: Example of free credit information provided online by some factoring companies
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