What is Freight Bill Factoring?
In short, freight bill factoring is a type of financing that helps transportation companies - freight carriers and brokerages - that have cash flow problems because shippers and clients are paying their freight bills slowly. It solves their cash flow problems by providing the funds you need to operate your trucking business and succeed.
Is this happening to you?
Most brokers and trucking companies get into cash flow problems due to one simple reason - their shippers and clients do not offer quick pays. So instead of getting paid as soon as the load is delivered, you have to wait 30, 40 or even 60 days for payment. In the meantime, it's up to you to keep your business running. You have to pay for fuel, for repairs and your drivers. The problem is that few trucking companies have enough money in the bank to run the business while waiting for payment. As you can imagine, this problem hits small and fast growing companies the hardest.
One simple way to solve this problem is to finance your transportation freight bills. Instead of waiting up to 60 days for payment, a factoring company can advance a large portion of the money that is owed to you quickly. This gives you immediate liquidity that you can use to pay your business expenses - or take on new loads. The transaction concludes once your shipper pays the freight bill on their regular schedule.
This solution puts your trucking carrier / broker on a solid financial footing and provides predictable cash flow, enabling you to run - and grow - your company.
How does it work?
There are two ways to structure a transaction. You can either have a full advance transaction or a two installment transaction. Most small carriers tend to use full advance transaction while larger companies go for two installment transactions.
The full advance transaction is very simple. The finance company buys your invoice for a single payment, which varies between 93% to 95% of your invoice. This service charges a flat fee, which is the amount that was not advanced..
Two installment transaction fund your invoice in two steps, called the advance and the rebate. The advance is provided as soon as the load is delivered and verified. It can average about 90% of the gross value of your invoice. The rebate, which covers the remaining 10% (less the fee), is wired once your client pays the invoice in full. The fee/rate for this type of transaction varies. Transactions are structured like this:
- You deliver the load to your client and send the documents to the factor
- The factor advances 90% of the invoice
- Your client pays, after 30 to 60 days
- The factor rebates the remaining 10%, less the fee
The fees for this service vary based on the volume you intend to finance, the quality of your freight bills and the number of clients you have. Generally, fees will range from 1.5% to 3% for every 30 days, depending on how your company fits these criteria. Fees can be negotiated and customized to fit your needs.
Qualifying for freight bill factoring is relatively easy. You need to have a motor carrier authority and proper insurance. Also, you must work with shippers and clients who have good commercial credit. This is very important because your accounts receivable (invoices) act as security and collateral for this transaction. Additionally, your invoices need to be free of liens and your transportation company should not have legal or tax problems.
Most companies can get a proposal the same day that they submit a completed application. And if accepted, the line can become operational a few days after.
Transportation factoring rates as low as 1.50%. Get a quote! Or call us at (866) 730 1922 to speak to a representative right now.