Why Use Factoring for Trucking Companies?
Payments to trucking companies and independent owner operators for shipments transported can take days, weeks or even months to be completed. For carriers and owner operators, delays in payments can have negatively impact cash flow and make it difficult for both to pay incoming bills. Factoring for a trucking company bridges the gap between when the carrier delivers the load and when the carrier receives final payment for it. Some freight brokers and third party logistics providers offer factoring services to help their carrier and owner operator partners and strengthen relationships with both.
What Is Factoring for Trucking Companies?
For a small percentage of the payment on a load, factoring companies essentially provide an advance payment to carriers and independent owner operators. Factoring for a trucking company is an essential part of doing business, as it allows invoices for loads to get paid quickly. Otherwise, carriers may wait 40 days or longer for a payout. This access to capital keeps trucking companies big and small solvent, allowing them to cover their expenses while waiting for final payouts.
Types of Factoring for a Trucking Company
What you may not know is that there are two different kinds of factoring for trucking companies. The first, recourse factoring, takes a lower percentage from the carrier’s payout on the load. However, if the factoring company is not able to collect payment from the broker or shipper the trucking company must buy back the invoice. With recourse factoring, if the factoring company isn’t able to collect payment the owner operator or carrier will remain unpaid.
The second type of factoring for a trucking company is non-recourse factoring. With non-recourse factoring, the carrier isn’t responsible for repaying the invoice if the factoring company is ultimately unable to collect payment. Factoring companies take a larger percentage of payment for non-recourse factoring. That means less risk for the carrier, but a smaller final payment.
How Does Factoring for a Trucking Company Work?
To get started with factoring, the trucking company or owner operator must initiate an application with the factoring company. Once approved to work with the factoring company, the owner operator or carrier must notify their own customers that they’re using a factoring company. After the trucker transports a load to its final destination and receives a signed invoice, the invoice is sent to the factoring company. The factoring company verifies the invoice and contract with the broker or shipper and then advances the driver or carrier a percentage of the invoice within a few days of the delivery. From there, the factoring company bills and collects the payment from the broker or shipper on behalf of the carrier or owner operator.
Why Do Freight Brokers Offer Factoring to Trucking Companies?
Factoring for a trucking company benefits all parties involved. It allows carriers and owner operators to be paid faster without taking out loans or using credit cards to stay afloat. When carriers and owner operators have reliable, steady cash flow in their businesses, they are better able to maintain their service levels and stability, which impacts service levels for brokers and 3PLs. For you, the freight broker or logistics provider, factoring takes some of the pressure off your back office staff to process carrier payments quickly. Offering factoring to trucking companies also strengthens your relationships with them for the long-term.
As a Broker, Do I Need To Offer Factoring for a Trucking Company?
While offering factoring for trucking companies certainly isn’t required of you as a freight broker, it is in your best interest to do so. As outlined above, cash flow can be a major issue for trucking companies and independent owner operators. Forty days is the standard payout time within the transportation industry. If you routinely contract with small or medium sized trucking business, waiting on payouts can cripple their ability to pay drivers, perform standard maintenance, and/or provide reliable truckload capacity to you and other freight brokers. One way to stand out from your competitors is to offer factoring for trucking companies. Doing so shows you’re invested in the success of your carrier and driver partners.
How To Offer Factoring for Trucking Companies
One of the easiest and cost effective ways to provide factoring to trucking companies is to use an app like Trucker Tools’ free mobile app with your carriers and drivers. The app includes more than 20 tools and features designed to simplify life on the road for truckers and carriers. Included in these 20 features and tools is an option for drivers and carriers to get paid faster via Triumph Pay and other factoring companies.
From within the driver app, truckers can easily apply for factoring services by tapping on GET PAID NOW in the app’s main menu. Once drivers or carriers tap on GET PAID NOW, they’ll be prompted to enter their contact details, MC/DOT numbers and other relevant information. After they submit these details, they’ll receive a response from the factoring company via email or by phone.