Freight factoring can be a great way to keep cash flowing in your trucking business. It helps you get paid faster by selling your invoices to a factoring company, which then collects payment from your customers. But before you sign up with a factoring company, it’s important to ask the right questions to make sure they’re a good fit for you. Here are the key questions you need to ask.

Understanding Freight Factoring

Freight factoring is when a company buys your unpaid invoices at a discount and gives you cash right away. This can be a big help for trucking companies that need money to cover expenses like fuel, maintenance, and payroll. The factoring company then collects payment from your customers. It’s a simple process, but picking the right company is important.

Financial Considerations

Ask about the factoring rate, which is the percentage they charge for their service. Also, find out if there are any extra fees like setup fees, monthly minimums, or wire fees. These can add up quickly. Find out what percentage of the invoice value you’ll get upfront. Most companies advance around 80-90%, but it can vary depending on the company (TMG advances 100% of the invoice, minus the factoring fee). The higher the advance rate, the better for your cash flow.

Contract Terms

Check how long the contract is. Some companies want you to sign up for a year or more, and some have 30 day contracts, or no contract factoring available. Also, ask if there are penalties if you need to end the contract early. Find out how fast you’ll get your money after submitting invoices. Some companies can fund you within 24 hours, but others might take longer. Also, ask how long the approval process takes when you first sign up.

Recent Blog Post : Introduction to Truck Factoring  

Hidden Costs

Make sure you understand all the fees involved. Sometimes there are hidden costs that aren’t obvious at first. Reading the fine print can save you from surprises later. Ask your representative up front about all of the fees included. This might be, but not limited to : invoice processing fee, same day funding fee, and money transfer fees. 

Collections and Recourse Policies

Ask who handles the collections. Some companies handle everything, while others might require you to stay involved. Knowing this helps you understand how your relationship with your customers might change. Recourse factoring means you’re responsible if your customer doesn’t pay. Non-recourse means the factoring company takes the risk. Make sure you understand which type you’re signing up for and what the risks are.

For recourse factoring, a good collections team is necessary.  

Invoice and Customer Eligibility

Check if there are any restrictions on the types of invoices they’ll factor. Some companies might not accept certain types of shipments or customers. Ask about any minimum volume requirements and the maximum amount they’ll factor. This helps you know if they can handle your business needs.

Dispute Resolution

Find out how they handle disputes over invoices or payments. It’s important to know the process and how they’ll help you if issues come up.

Customer Support and Technology

Ask about the availability of customer support. Is it 24/7? Can you reach them by phone, email, or live chat? Good support can make a big difference. Check if they have a user-friendly platform or mobile app. This makes it easier to manage your account and track your funds.

We have found that customer service is the most important factor when dealing with a factoring company, as this will result in how quickly questions and concerns will be addressed. 

Company Reputation and Experience

Ask for references from current clients and check online reviews. This gives you an idea of their reputation and how they treat their customers. Find out how long they’ve been in business and if they specialize in freight factoring. Experience in the industry is a plus, as this will affect your overall experience. 

Special Terms and Conditions

Ask if there are any special terms or conditions that apply to certain invoices or customers. Knowing this upfront can prevent issues later. Check if you can get additional advances on existing invoices and what the terms are for this service. This can be helpful in tight situations.

Choosing the right freight factoring company is important for your trucking business. By asking these questions, you can find a company that meets your needs and helps you keep your cash flow strong. Take your time, do your research, and make sure you’re comfortable with the company you choose, as it is very important for your business! 

If you have any questions about factoring, give us a call at 931-273-2301, TMG will be happy to answer any questions you have.