03 Jan What is freight Factoring? Factoring Freight with OTR Solutions
What is Freight Factoring?
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 24 hours. 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.
Why Choose Freight Factoring?
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 up front and in turn, handle all the billing and collections for you. Based on a 2017 report by the American Transportation Research Institute, the average cost to run a truck is $66.65 per hour. When you consider time spent on the road and all it takes to run your business, you can’t afford to wait the 30-60 days to get paid on your invoices. While to some, factoring is the best solution, others may find it to be an unnecessary expense. So, let’s clear up those misconceptions and truly understand what freight factoring is.
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 also provide the back office support by handling the billing and collections on each invoice.
How Does Freight Factoring Work?
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 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.
As you can see, factoring is meant to simplify your life so you can get paid on your loads within 24-48 hours and give all the billing and collections to the factoring company. Freight factoring is a solution that provides your company with fast cash and full back office support rather than hiring a staff to handle your invoices accounts receivables. So, if your freight factoring company isn’t making your life easier or if you don’t currently have a freight factoring company at your side, contact us and we will be sure to take care of your business the right way.
Freight Factoring: Yep, You Need It!
Thanks for reading! You learned what freight factoring is and how it can benefit you or your business. If you want to learn more about freight factoring contact OTR Solutions today! Or, if you’re ready to get started and start factoring with OTR Solutions today!