When it comes to turning a profit, every penny counts – especially in the competitive landscape of today’s transportation industry. That’s why more and more trucking companies are looking to factoring as a way of managing their cash flow and improving their bottom line.
That might sound appealing, so you may find yourself asking, “do I need factoring?” If so, sit back and keep reading. Here, we’ll take a look at what factoring is, how to gauge whether or not it’s right for you, what kind of partner you should look for when searching for the best factoring company and what questions to ask them before you jump on board.
What is transportation factoring and how does it work?
It’s just the way it is: while managing a transportation business, there are delays between when you deliver your loads and when you are paid for them. That wait time can cause cash flow problems for small businesses – but there’s a solution: partnering with a factoring company.
Also referred to as freight factoring or trucking factoring, transportation factoring is a type of financing that allows trucking companies to receive payment for their freight bills sooner, usually the same day they deliver, than if they were waiting for their customers to pay.
In other words, rather than waiting 30, 60, or 90 days for payment from the customer, freight factors will provide trucking companies with funding upfront, allowing them to keep their business moving forward. Essentially, you, the company, sells its invoices to a third party at a discount, and the third party then pays the company immediately.
OTR Solutions is an industry-leading freight factoring company. We provide carriers the technology, financial services, tools and support that they need in order to grow and operate a successful transportation business. There are several advantages to utilizing factoring in your transportation business.
What are the advantages of transportation factoring?
Freight factoring is a popular financing option for trucking companies of all sizes and it’s because there are a number of benefits to it. For starters, you get paid sooner and begin to free up working capital. This allows you to have more cash on hand to cover expenses such as fuel and repairs, as well as meet other financial obligations.
As a result, you’ll be handling your cash flow more effectively and be reducing the stress associated with managing accounts receivable.
What are the disadvantages of transportation factoring?
While transportation and freight factoring is most certainly a great option with thousands of advantages there are also a few disadvantages to note.
The biggest disadvantage that you can expect through various factoring partners is the fees.
As quoted from our “How Does Invoice Factoring Work” article:
Added fees based on how long the customer or broker takes to pay the invoice.
High Direct Deposit/ACH Fees
Factors may charge upwards of $10 per ACH.
PS: OTR Solutions only charges you $1 per ACH direct deposit.
Invoicing Processing Fees
Additional fees that your factoring company charges to send the invoice to the broker.
Additional fees to audit the paperwork, and process payment. This is separate from the fee above.
Additional fees to scan the paperwork the factoring companies need to get you paid.
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.
There is also collection risk management which is not an issue when you factor with a true non-recourse freight and transportation factoring company such as OTR Solutions. We’ll get into this in more depth shortly in our Non Recourse vs. Recourse Factoring section.
Here are some of the innovative solutions you’d have access to with OTR:
- The best and only true non-recourse factoring program
- Customizable fleet factoring programs
- BOLT Instant Funding
- No monthly minimums
- Dedicated Operations Team
- Client portal and mobile app
- No hidden fees and free to apply!
So, when you need to be prepared for anything, now you can trust in the reliable financing, back-office solutions, education tools and technology of OTR Solutions.
Non Recourse vs. Recourse Factoring – What is the Difference?
We mentioned above that OTR Solutions offers true “non-recourse” factoring, but what does that mean? And if there are both Non-Recourse and Recourse factoring companies, what is the difference and how do you know which one you want to go with?
It’s pretty simple:
Recourse factoring means that the factor has the right to collect the debt from the business if the customer does not pay.
Non-recourse factoring means that the factor assumes the risk of non-payment from your customer and is not able to collect the debt from the business.
In general, recourse factoring is less expensive than non-recourse factoring because it is a lower risk for the factor. However, non-recourse factoring is the better option for new, small, or medium size carriers who may not be able to assume the risk of their customers not paying an invoice, where recourse factoring is preferred by larger carriers who want more flexibility with the customers they work with.
For years now, OTR Solutions has been developing and improving upon its factoring programs. Today, we offer the best non-recourse factoring program around.
When you’re provided with a dedicated account manager and at-your-service operations and accounts receivable teams, there really isn’t any trucking company out there that couldn’t benefit from partnering with us.
Who needs Freight Factoring?
All businesses need to manage their finances carefully, but because of the way factoring frees up cash flow so well, businesses that rely on payment for freight shipments may find themselves in particular need of the best factoring services.
If you’re still asking, do I need factoring? It’s true – while factoring can be a helpful tool for all trucking companies, it’s important to note that it’s not for everyone. There are several factors to consider when deciding if factoring is right for you.
Apply For Transportation & Freight Factoring With OTR Solutions
If you’re ready to unlock your cash flow – fill out this quick application to get started with OTR Solutions.
You are a great candidate for factoring if:
You own a trucking business
There are too many expensive, both foreseen and unforeseen that truckers are continually faced with. All carriers and freight brokers should consider invoice factoring as a means to free up cash flow.
You need to improve cash flow.
Factoring serves as a long-term, continued engagement-based service that offers cash flow and back office and operations benefits that grow with your company.
You’d benefit from all the perks.
This cash can be used to cover expenses, such as fuel, repairs, and salaries, allowing you to keep your business running smoothly.
If you hit any or all of the above marks and you decide that factoring may actually be the right choice for you, or if you have any questions at all in the process, contact OTR Solutions – we would be happy to work with you.
Questions to ask a potential factoring company
When considering a freight factoring company, there are a few key questions you should ask in order to determine if they’re the right fit for your business.
1. How long have you been in business?
Be sure and ask about the company’s experience and reputation, and whether they have a good track record.
2. How long does it take to get funded?
Also known as ‘hold times,’ this is the amount of time between when you submit an invoice and when the funds become available. The shorter the hold time, the better. If you need quick access to funds, you’ll want to make sure the company can provide that. The best factoring companies process and fund invoices the same business day.
3. What are your rates and fees?
Some companies charge hidden fees, so make sure you read all the fine print and understand all of the fees associated with using the company’s services – as well as how they are calculated – BEFORE you sign any contracts.
4. What is your funding minimum?
Many factoring companies have minimum funding requirements, so be sure to find out what that number is.
5. What are your customer service hours?
It’s important to know when you can reach customer service in case you have any questions or problems. Our operations team is dedicated to your account and since, plus you won’t get an answering machine – all calls are answered.
6. What additional services do you offer?
Some freight factoring companies also offer fuel advances and credit protection, fleet factoring and more – which can be helpful for businesses that operate on tight margins.
Asking these questions will help you narrow down your options and find the right factoring company for your needs.
Factor with OTR Solutions
When it comes to choosing the best factoring company for you, don’t settle for anything less than OTR Solutions. As a testament to our greatness, we were named Top Workplace by the Atlanta Journal-Constitution in six consecutive years of Inc. 5,000! Contact us today to learn more about how our freight factoring services can help your business grow. We’re happy to answer any questions you have and provide a free quote.