Saturday, June 19, 2010

Trucking Factoring

The trucking industry is highly sensitive to the economics of trade and requires good cash flow to maintain service levels since there are needs to pay for fuel and drivers. If a trucking company's customers are paying slowly or if the company does not have the capacity to make sure employees are paid and fuel tanks are full to keep the company moving, then factoring might prove to be an excellent way to ensure funds are available.

Most factoring companies only work with companies that actually haul goods, but some will consider working with brokerages. There are some factoring companies that specialize in freight brokerage factoring. If you run a company that offers brokerage services, you will want to make sure the factor you are talking with can advance on those invoices.

One of the biggest concerns trucking companies have regarding factoring their invoices is the standard requirement that the original bill of lading be submitted to the factor prior to funds being advanced. The major misconception surrounding this issue is that the factor has to keep the BOL. Typically, the factor just needs to see and scan into their system the original to make sure the document is legitimate and then can forward it along to your customer should they require the original prior to making payment.

The trucking factoring marketplace is highly competitive since there are so many companies out there that offer the services and the trucking industry is very familiar with such services. Advance rates and fee structures vary widely from company to company. If your company delivers loads to both US and Canadian based customers, you will want to make certain that your factoring company is able to work with Canadian based businesses (and ideally has a presence in Canada) otherwise you may find that you are not getting the most out of the service. Typical trucking advance rates are about 85% - 90%, but can be as high as 97% depending upon customer credit and average monthly sales volume. Fees vary depending upon the same criteria. If you are doing $50,000 in monthly sales, you should be getting rates of 1.59% for the first 30 days with at least an 85% advance rate. If you are paying more, maybe you should start shopping around.

Also, there are some companies out there that will factor a single invoice instead of having to factor all your invoices. They usually charge higher fees since there is higher risk involved for them, but this can help out in a pinch if you only need a one-time infusion of cash. Most load boards have loads listed with pre-approved invoices for this type of factoring. One of the best known single invoice factoring companies is FreightCheck.

Factoring agreements typically auto-renew and require a 30 or 60 day notice to terminate, so if you are looking to get into a new relationship check your agreement to find out when you would need to notify your current factor that you plan on ending the relationship. It is possible to leave early, but there are typically penalties for doing so. Most agreements are for 12 months, some are for 6 months, and there are some that are month-to-month. The more you are willing to commit the better deal they can offer you. Make sure you read your factoring agreement thoroughly prior to signing.

Also, ask if they offer fuel cards to help make sure your drivers have a way to stay out on the road without having to wire cash or deposit funding into a separate account. Most factoring companies offer both a credit based and pre-pay fuel cards that offer discounts at the pump along with other perks.

If you have any questions about how factoring your freight bills might help your business, please feel free to contact me.
Custom Search