Freight factoring is a specialized form of freight financing or financial factoring that seeks to get trucking companies paid for services before shippers and brokers pay the actual invoice. Finance factoring, including truck or freight factoring, is expected to grow at a compounded annual growth rate (CAGR) of 8.4% through 2028, according to Grand View Research. This is evidence that companies need more substantial cash flows and a shorter payment clock. However, shippers and brokers do not always have their financial systems in place to offer those advantages. That’s why more trucking companies are turning to freight factoring services to get paid faster and use those funds for working capital that supports day-to-day operations. Let’s take a closer look at how invoice factoring works, what fees might apply, and the benefits of factoring.
What Does Freight Factoring Mean and How Invoice Factoring Works
Freight or transportation factoring is a process by which a freight factoring service provider advances the amount of an invoice and keeps a portion as a reserve. Factoring is essentially an upfront loan toward the invoice. The remaining balance is given to the trucking company later after all fees, costs, and other expenses are considered and when the invoice is paid. However, not all freight factoring companies offer the same rates. That’s why knowing how much freight factoring companies charge can be difficult at best.
There are also two primary types of factoring to consider:
- Non-recourse factoring protects the trucking business if the broker or shipper doesn’t pay at all.
- Recourse factoring puts the trucking company as the responsible party if the shipper or broker doesn’t pay.
Both forms of factoring may be used depending on the number of invoices and their total value. Regardless, the whole point of truck factoring rates is to give trucking companies a set expectation for payment within a few days or mere hours of delivering an order.
Other Fees Might Come Into Play
Freight bill factoring rates are highly subjective and depend on the value of the invoice, the freight, and the value placed on the reliability of the shipper or broker. That’s also known as assessing the credit risk of the shipper and broker, and since the freight factoring provider carries the risk, added fees might come into play. These include added collection efforts and potential legal ramifications against shippers and brokers that do not pay by the invoice due date.
Other possible fees include a setup fee, monthly service fee, or even fees associated with recourse factoring. It all depends on what the agreement defines.
Truck Factoring Rates Might Vary
In addition to specific fees, different trucking factoring rates may apply as well. The rates are designed to offer the most reliable and realistic expectation for payment from a shipper or broker. The rates also depend on the trucking companies’ costs and terms set forth in the agreement. Additionally, trucking factoring rates can be more complex when considering different stops and loads, such as a trucking company consolidating multiple LTL shipments into FT. Other possible influences that could affect rates include delivery days, zones, special equipment costs, and more. Again, this is where asking how much do freight factoring companies charge will become vital in setting expectations upon signing an agreement with set freight payment terms and choosing a factoring servicer.
Benefits of a Freight Factoring Company Partnerships
Freight factoring offers significant benefits to trucking companies, but many still get confused over how much freight factoring companies might charge. Let’s consider the top benefits of working with a factoring service and how it can alleviate cash flow struggles for trucking companies.
- Immediate access to working capital on the same day — in other words, a shorter payment timeframe.
- Offering higher advances than traditional bank accounting options.
- Different agreement types to suit almost any shipment.
- Funding available regardless of size.
- Back-office support to handle unexpected issues.
- Improved budgeting for future transportation needs.
Know Freight Carrier Payment Terms and Factoring Rates When Choosing a Company
For freight carrier payment management, maintaining a solid working capital reserve can be difficult. That’s true even in times of booming, carrier-strengthened markets. However, not all carriers or trucking companies can afford to wait for weeks or months to get paid on their invoices. Enter the truck factoring companies that have the capital, experience, and resources to save the day. Most importantly, freight factoring companies are experts in contractual language and keep your business’s fiscal health intact. Request a demo to see how the HaulPay platform works to take advantage of our unique freight factoring service, HaulPay.