How To Choose a Truck Factoring Company - OTR Solutions

How To Choose a Truck Factoring Company

There are many truck factoring companies out there, so how do you choose the right one for your trucking business? Here are a few things to keep in mind:

What does a factoring company do?

Before we dive into how to choose a truck factoring company, it’s important to understand what a factoring company does.

Truck factoring companies buy invoices from carriers who typically have slower payment terms from their customers.. Factors often make their money on invoices by paying a discounted price on invoices. 

Another great way to look at factoring is an exchange of debt risk. The client (carrier) sells off their risk for a lower amount while the factor takes increased risk – there is also the opposite where the client  keeps partial risk but will owe on invoices not collected.

There are two types of factoring which are recourse and non-recourse which we will cover in this article.

What does the factoring company specialize in?

Some truck factoring companies only work with trucking businesses, while others may also work with other types of businesses. Make sure you choose a company that specializes in truck factoring.

Factoring companies typically specialize in many areas and it’s important when choosing a truck factoring company that they primarily provide  truck factoring.What are the terms and conditions?

Each factoring company has different terms and conditions, so it’s important to read through them carefully before deciding to work with a particular company. If you are not careful, you can sign a long term contract with unfavorable – and in many cases detrimental – conditions that hurt you in the long run.

Some things you should look out for include:

The length of the contract

Typically, factoring agreements last between one and three years so you should find a truck factoring company that allows you to have a shorter contract, so you have the power to change factors if you feel your current provider is not fulfilling or meeting your expectations and or business requirements..

The fees associated with using the service

Some of the freight factoring fees you should watch out for are:

Tiered Rates

Tiered rate is a variable factoring percentage you pay on each factored invoice which is typically adjusted based on how fast your clients pay their invoices.

High Direct Deposit/ACH Fees 

High direct deposit and ACH fees are very common within most truck factoring companies as these companies consider the risk that they’re taking in return, they are up charging you for that risk to be compensated.

Invoicing Processing Fees

Invoice processing fees can vary greatly across truck factoring companies and it’s important to find a company that clearly explains the rate to you. If it’s too low or too high of a processing fee, ask more questions. A reputable factoring company will include all fees in their flat factoring rate rather than advertising a low up front rate that makes the service seem less expensive when it actually costs the same or more.  

Scanning Fees

These are often additional fees to scan paperwork the factoring companies need to get you paid.

Collections Fees 

Additional fees for each call/follow up that the factoring company makes on behalf of the carrier.

Monthly Minimum Fees

Additional fees if the carrier doesn’t meet their monthly volume requirement. These can often be as high as 2%.

OTR Solutions vs. Others

ConditionsOTR SolutionsOthers
Contract Length1 year typically1-3+ years
Direct Deposit / ACH Fees$1$10+
Invoice Processing Fees$02.5% and up
Scanning Fees$0$1-$5
Collections Fees$0$1-$5
Monthly Minimum Fees$02%+

Read more about truck factoring invoice fees on the OTR blog.

What type of trucking invoices the company will factor

Certain contracts may be only taken into account. It’s important to find a truck factoring company that will factor in your unique invoice type.

Recourse Factoring

Recourse factoring or full-recourse factoring is when the  carrier (client) assumes responsibility for collecting on a factored invoice even after they are paid by the factor.  If their customer does not pay the invoice, the carrier will buy the uncollectible invoices back from the factor. Although this type of program is not ideal for most small to medium sized carriers, it can be a good option for operations large enough to accept this risk in exchange for more freedom on customer credit approvals.

Non-Recourse Factoring
Non-recourse factoring is when the factoring company assumes the risk of not collecting on a factored invoice from the broker. This is preferred by the majority of small and medium sized carriers as their cash flow is more reliable and their involvement in how well their customers are paying is minimal. 

What is the turnaround time?

Trucking businesses need to have their invoices paid quickly, so it’s important to choose a truck factoring company that can provide a quick turnaround time. Ideally, you should look for a company that can pay invoices within 24 hours.

Most factoring companies offer 24 hour turnaround time with same day deposits available with additional expedition fees on the transfer. 

What is customer service like?

When you’re running a trucking business, you don’t have time to deal with poor customer service. Make sure you choose a truck factoring company that has a good reputation for providing excellent customer service.

When dealing with money, we want to feel comfortable and secure in any event that support is needed. It’s important to have good customer service at your fingertips.

Here are three things to look for in truck factoring companies customer service teams:

  1. Turn around time for responses 

How fast will the company respond to your inquiries?

  1. Dedicated team account manager

Does the truck factoring company provide you with a dedicated account manager for issues, questions or concerns?

  1. Availability

Is the customer service team available for the times you will need them the most? Are they adaptable to your schedule?

What is the reputation of the company?

Take some time to read online reviews of truck factoring companies before making a decision. This will give you an idea of what others have thought about their experience with a particular company.

Some common complains about the reputation of truck factoring companies are:

The risk they take on is less than your risk

Risk is often standardized across the industry of truck factoring however, it is very important to minimize your risk where you can so try to find a truck factoring company that will take on the primary risk or at least split risk. This is usually found in the terms surrounding their non-recourse offering, try to find a company who offers a true non-recourse truck factoring program. 

Choosing the right truck factoring company can make a big difference in the success of your trucking business. By keeping these things in mind, you’ll be able to find a company that best suits your needs.

Ready to get started with OTR Solutions?

We offer truck factoring services with no long-term contracts, quick turnaround times (within 24 hours!), and excellent customer service.  

Get in touch with us today to learn more about how we can help your trucking business succeed.

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