Length of a Freight Factoring Contract
What is the Industry Standard
A factoring contract is in place to protect both the factoring company and the trucking company by defining the terms of the relationship. It is equally important for both parties to be able to depend on the other’s continued business. A trucking company needs to rely on continued funding from its lender; otherwise it becomes financially vulnerable should the factoring company choose to cease funding. A signed contract protects the trucking company from this vulnerability.
Avoid factoring agreements that lock you into multi-year terms.
Contracts with one year terms are considered industry standard and are to be expected. Avoid at all costs any factoring agreement that locks clients into multi-year terms and or has undefined termination penalties. The purpose of the contract is to establish stability, not intentionally lock one of the parties into a long and arduous relationship.
Look for:a factoring agreement that has no longer than a 12 month term and defines a clear set of conditions for early termination.
If a factoring company is chosen carefully, a trucking business should benefit greatly from the relationship. If, however a client is dissatisfied for any reason, they need the ability to end the relationship without undue adversity.
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