What Is Freight Factoring? Everything You Need to Know

What Is Freight Factoring? Everything You Need to Know

In the trucking industry, “freight factoring” is quite common, but many drivers and business owners are still unclear about what it is how it works, and how it supports trucking businesses. It’s a popular solution for owner-operators and trucking companies that helps them to avoid the usual delays in receiving payments for outstanding invoices. But what is freight factoring, exactly?.

Freight factoring offers many benefits, but the most important is that it helps provide trucking businesses of all sizes with consistent cash flow. This is highly beneficial for owner-operators, who often find themselves juggling their time between driving and managing money. 

Here at OTR Solutions, we’ve crafted this guide to freight factoring. It dives deep into the details of freight factoring and proves that freight factoring is something business owners need to leverage to protect their operations. Let’s get started with everything you need to know about factoring for trucking.

Freight Factoring, Defined

Freight factoring is a solution in which a trucking business sells its accounts receivables (invoices) to a factoring company at a discount for payment within 1-3 days. Freight factoring is the go-to solution for many trucking companies, big and small alike, to not only provide immediate cash flow but also back-office support for an operating company.

What is a Freight Factoring Company?

A freight factoring company, like OTR Solutions, provides a vital service in the trucking industry. It buys your unpaid invoices, giving you immediate cash instead of the typical 30-60-day wait for customer payments. This process not only boosts your cash flow but also relieves you from the burden of managing accounts receivable. It’s a strategic financial partner, especially for businesses seeking stable funding without the problems of traditional bank loans. With OTR Solutions, you gain a partner who understands the challenges of a trucking business.

Do I Need a Factoring Company for Trucking?

If you’re considering the benefits of factoring, you may wonder, “why pay someone else a percentage of my profits when I can just do it on my own?” What you may be missing is the relief by letting a factoring company pay you upfront and in turn, handle all the billing and collections for you. 

Based on the latest 2022 research from the American Transportation Research Institute, the average operational costs for trucking have increased significantly. The report shows a notable rise in expenses, with fuel costs increasing by over 50% from the previous year. Wages for drivers and the cost of equipment have also surged due to supply chain disruptions. With operational costs now higher than ever, many trucking companies struggle with cash flow, especially when payments for services rendered can take 30-60 days. Freight factoring for trucking offers a solution by providing quick payments, although some view it as an unnecessary expense. This method could be crucial for managing the increased costs effectively.

Although the average days for brokers and shippers to pay the carrier is somewhere between 30-45 days, about 60% of invoices are paid late. When you submit your invoice to the factoring company, you get your payment the same day or next day. The factoring company is then responsible for collecting on the invoice, even if it pays late. So, factoring your invoices for fast payment can be a good way to avoid delayed payments. In addition to cash flow, factoring companies for trucking also provide back-office support by handling the billing and collections on each invoice.

Discover The Ease Of Factoring With OTR Solutions

Exploring the benefits of factoring for your trucking business? Let OTR Solutions take the financial burden off your shoulders. Get paid faster and focus on what you do best – driving and managing your business.

Can You Have More Than One Factoring Company?

Working with more than one factoring company at the same time isn’t really necessary nor feasible. When you factor your invoices, the factoring company takes over the responsibility of collecting payment from your customers. This process is exclusive, meaning the invoice can only be factored with one company to avoid conflicts and confusion in payment collection. At OTR Solutions, we provide factoring services that offer all the financial support your trucking business needs under one roof. It simplifies your operations and ensures that your financial dealings are streamlined and efficient.

How Does Freight Factoring Work?

Your next question is a great one. “How does factoring work in trucking?” Well, after delivering a load, you submit the Rate Confirmation & BOL to your factoring company. The factoring company verifies a clean delivery with the brokerage. Once verified, the payments are deposited into your account via ACH (overnight), wire transfer (under an hour), or through your fuel card (instant). Many factoring companies for trucking make invoicing even easier by providing an online portal where you create the invoice and submit both the bill of lading and rate confirmation.

What Happens After The Factoring Company Gets Paid?

Once the factoring company pays you on the load, it is their responsibility to collect on the payments. Once they collect the payment from your customer, the invoice is marked closed. Ultimately it is up to the factoring company to collect the payment for the lifetime of that invoice. It varies depending on the type of program you are on, which will be explained in a later post.

Arm Your Trucking Business with OTR Solutions

Streamline your cash flow with OTR Solutions’ freight factoring. Get paid quickly, in just 24-48 hours, and let us handle the billing and collections. If you’re not experiencing this ease with your current factoring company, or if you’re new to factoring, let us show you how we can help your business thrive.

Contact Us and Start Factoring

What Is The Difference Between Non-Recourse and Recourse Freight Factoring

In the world of freight factoring, two main types exist: non-recourse and recourse factoring. The key difference lies in who becomes responsible for unpaid invoices. 

In a non-recourse factoring agreement, the factoring company assumes the risk of unpaid invoices. If your customer fails to pay, you’re not held responsible for the loss. This type of factoring offers peace of mind but often comes with higher fees due to the increased risk the factoring company takes on.

Recourse factoring, on the other hand, places the risk of unpaid invoices on you. If your customer doesn’t pay the invoice, the factoring company has the ability to charge you back. This type of factoring usually offers lower fees but with the added risk of covering any unpaid invoices at any given time.

At OTR Solutions, you get only True Non-Recourse Factoring, perfect for trucking companies that want stability without the risk. With our service, if your customer doesn’t pay an invoice, you don’t have to worry about it. This factoring solution is made to give you comfort and protect your business, letting you focus on running your business instead of stressing about client payments. 

Learn More About Non-Recourse Factoring

What Else Might A Freight Factoring Company Offer?

Besides factoring invoices and getting paid within the same day with BOLT instant payments, OTR Solutions offers many services and tools, as well as the best client support you could ask for. You’ll be equipped with an OTR Fuel Card, which can be used at thousands of gas stations nationwide; OTR Clutch, the world’s first-ever banking solution designed specifically for the trucking industry; not to mention lumper advances and fuel advances, just to name a few.

Freight Factoring: Yep, You Need It! 

Thank you for taking the time to learn about freight factoring and its benefits. If this guide has sparked your interest in how factoring can support your business, contact OTR Solutions to review your options. As one of the best factoring companies for trucking, we are here for you. So whether you’re looking to learn more about trucking solutions or are ready to jump into action, we’re just a click away.

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