Invoice factoring is when an invoice is sold (transferred) to a factoring company in exchange for a quicker payment with reduced risk. That said, it does go a bit deeper than this when we talk about freight invoice factoring (also known as just “freight factoring”).
In this guide, we’ll explore the two types of invoice factoring in the world of freight and explain in depth the benefits of freight invoice factoring.
Ready? Let’s dive in!
How Does Invoice Factoring Work?
Invoice factoring works in various ways and it truly depends on the factoring company. For simplicity’s sake, let’s talk about how invoice factoring works with us here at OTR Solutions and to do that, we’ll take a look at the general process which is divided into three parts.
Step 1: Load is Booked
Step 1 is the initial step that the carrier takes. This step is booking the load. This can be done through a load board, broker, or any other means of securing a load. At this point, no interaction with your factoring company is necessary. For True Non-Recourse factoring clients, a Broker Check is required to verify that the invoice meets our standards.
Step 2: Factor Reviews Invoice
Once you submit your invoice to OTR Solutions, it goes through the review process. The factor audits the invoice, and if everything checks out, they provide payment, minus a small fee.
It’s important to understand that not all factors handle invoice audits the same way. Many use automated processes and rely on recourse factoring, where the carrier assumes the risk. This means that if the broker doesn’t pay, the carrier is responsible for paying the invoice amount back to the factor.
At OTR Solutions, we use non-recourse factoring, which eliminates that risk for the carrier. With our True Non-Recourse factoring program, we assume the risk of non-payment from the broker. This means that regardless of what happens with the broker or shipper, the carrier will always be paid in full for their work.
Step 3: Factor Releases Payment
The final step in the process is to get paid. The factor will release your payment to you typically within one or two business days–we at OTR Solutions release payments the same day, typically within an hour.
Normal payments are sent through a standard ACH deposit, which usually takes 1 business day to clear and be deposited into your account. However, OTR’s BOLT program is an instant payment method which will have your funds readily available in your account in minutes after payment is scheduled.
Understanding Risk in Factoring: Recourse & Non-Recourse
What if my client doesn’t pay? Who assumes the risk? What is recourse factoring? What is non-recourse factoring? What’s the best?
Invoice factoring is a complex subject–worry not however, let’s go into more depth to give you the knowledge needed to answer those very questions.
Recourse Factoring
Recourse factoring is usually synonymous with invoice factoring, with the carrier being the one who assumes the risk in the event of non-payment. Recourse factoring means that as the carrier you’ll assume the risk, and will ultimately be responsible for non-payment, in the event that your client does not pay the factor for the load. In that case, you’ll have to pay your factor back the amount that they fronted you when you submitted the invoice.
Non-Recourse Factoring
Non-recourse factoring on the other hand puts the risk of non-payment on the factor. Meaning, even if your factor is unable to collect payment from the customer, you as the carrier will not be held responsible. Your factor will pay you when you submit the invoice, and you’ll never have to worry about it again. You keep that money 100% of the time.
Who Can Benefit from Invoice Factoring?
Really any trucker out there can benefit from invoice factoring. Regardless of your fleet size, from owner-operators to large fleet owners, and even brokers, factoring offers an easily customizable solution to your business’ cash flow problems.
Include non-cash benefits of factoring (partners, broker checks, fuel finder, service, expertise, etc.)
What Do Invoice Factoring Companies Offer Aside From Factoring?
Depending on the factoring company, you can expect a surplus of additional solutions designed to help you scale your cash flow. Let’s take a look at the additional solutions that are included here at OTR Solutions.
Fuel Advances
Get access to funding 24/7/365 within 20 minutes to pay for fuel with OTR Solutions fuel advance solution.
Lumper Fee Advances
Are unexpected lumper fees taking a hit on your budget? OTR Solutions offers a lumper fee advance designed to help you overcome these pesky fees. Get access in minutes.
BASIC Monitoring
Understand your BASIC scores and monitor them with ease with OTR Solutions safety score monitoring solution.
Fuel Finder
Wondering how much fuel will be at your destination? Utilize Fuel Finder in the OTR Mobile App showing you the best price for fuel along your route. Pair Fuel Finder with the OTR Fuel Card to see your discounted rate at 2,200+ stations nationwide.
OTR Fuel Card
Save $0.50 on average per gallon, with zero credit checks. Sounds like a dream? It’s not! The OTR Fuel Card is a prepaid fuel card that works at thousands of truck stops nationwide and in addition to fuel discounts, it offers discounts on lodging.
Industry-Leading Partnerships
Another perk you get when you factor your invoices with OTR Solutions is access to industry leading load boards and discounts, such as DAT and Sylectus.
Choose OTR Solutions For Your Freight Invoice Factoring Needs Today
Unlock all of the solutions and gain access to the best non-recourse factoring program around. Mitigate risk and secure your cash flow today. Get started and apply now.
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