There are a few roadblocks you might run into when you start your own trucking company. Sure, you have the freedom to set your own schedule, you answer to no one and all of the profits are yours, but have you considered the less than exciting parts of being in business for yourself? You know, like paying for truck maintenance and fuel or dealing with billing and collections? That’s where freight invoice factoring comes in.

By Rachel Donaghy


How does it work?

Freight factoring isn’t a loan. It’s your funds, they’re just available sooner. To put it simply, freight factoring is a way for owner operators, fleet owners and brokers to sell their unpaid invoices to a factoring company for a small fee (usually less than 5%). You get cash in your hands quickly to put back into your business and you don’t have to waste time collecting on your invoice, the factoring company does it for you. An added bonus is that many factoring companies offer extras just for doing business with them, things like fuel cards, tire discounts or access to high-paying load boards so you can get back on the road quickly.

In other words, freight factoring is an accounts receivable option that monetizes outstanding invoices by paying you (almost) immediately for work you’ve already completed. The factoring company will traditionally pay out 80% to 95% of the value of your outstanding invoices within 24 hours and pays the remaining balance minus their fees once the customer pays the invoice, usually in 30 to 60 days.

Factoring shouldn’t be a dirty word

Why is freight factoring such a big deal in the transportation world? Many successful owner operators and fleet owners swear by it, but others see it in a negative light. What are the misconceptions and how can factoring actually help your company?

Two negative connotations are regularly connected to factoring: cost and customer perception. People in the trucking industry assume that factoring invoices costs too much money. The reality is that the cost to factor a $1,000 invoice is likely around $25. Getting paid for that invoice within 24 hours is worth the small fee so truckers can get back on the road faster.

The negative customer perception is more difficult to narrow down. A small subset of people in the trucking industry believe that only struggling companies utilize factoring. The opposite is actually true. Companies use factoring so they can focus on hauling loads and not on accounts receivable. Additionally, more and more freight brokers are utilizing factoring as the cash crunch isn’t unique only to trucking companies. Freight brokers also love working with carriers who factor since they know they can take their full payment terms without jeopardizing their carrier relationships.

The benefits of factoring invoices

Freight factoring is beneficial to both owner operators with one or two trucks looking to get paid immediately to take on additional work and for fleet owners looking to fill a business cash flow gap.

When you start your own transportation company, positive cash flow is critical to your company’s success. Freight factoring can be an ideal option for a trucking company because it’s not a loan and your credit isn’t a factor. You qualify for factoring services based on the creditworthiness of your customers instead of your own. And, unlike the lengthy process of securing bank loans which looks at your credit score, financials and can take weeks to complete, most trucking companies can be approved for factoring in a couple days or less!

In fact, savvy truckers often recommend that new freight trucking companies secure a partnership with a factoring company right away. That way, your account is set up and ready when you need it.

There are lots of reasons why trucking companies use invoice factoring. Here are five:

1. Get your business started on the right foot.

When starting a new trucking business, it is necessary to have cash up front to pay for fuel and expenses to deliver your load – all before you get paid. New companies may have a hard time securing bank loans if they don’t have a favorable credit history or any credit at all. Some factoring companies offer fuel advances so these small businesses can get on the road faster. It’s not a loan, it’s your hard-earned money made available early.

2. Help meet the demands of a growing business.

Taking on more jobs and growing your freight business can be difficult when you don’t have cash on hand to hire additional drivers and pay for gas, rigs and repairs. You can use factoring as a way to get your payment upfront so you can complete each job and continue to expand your business.

3. Debt free is the way to be.

Starting a new trucking business doesn’t mean you have to go into debt. It’s possible to fund your business with freight invoice factoring so you can avoid the hassle and expense of a business loan. You’re simply getting paid for your job in advance, and you won’t owe a financial institution any money after the job is done.

4. Factor in an accounts receivable team.

Most truckers didn’t get into this business because they like chasing paperwork. Invoicing clients and collecting payment after completed jobs can be a hassle. Not to mention that you might not see your money for a minimum of 30 days after the job is done. You can save yourself from managing accounts payable or dealing with the expense of hiring extra staff by choosing freight factoring to keep track of your invoices. You get paid up front and the factoring company takes care of making sure your client pays.

5. Factor today, tomorrow or whenever.

Freight factoring offers the ultimate flexibility by allowing you to choose when you use factoring services. Maybe some clients pay faster than the typical 30 days so you don’t need the services. No problem. Use it when it’s most convenient for you.

Moral of the story? Don’t wait to partner with a factoring company. You’ll have cash in your hands while avoiding debt and freeing your time to focus on new sales and growing your business.

Rachel Donaghy is the Senior Director of Account Management at eCapital is building a brighter future for the transportation industry. It’s a future where freight companies get paid at the click of a button. Where document exchange becomes data exchange. Where complexity disappears into the background and drivers have the freedom to focus on delivering the next load. You can find Rachel on LinkedIn and Twitter.

Factoring stock photo by designer491/Shutterstock