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What are the Best Tips for Freight Bill Factoring?

By J. D. Kenrich
Updated May 17, 2024
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Freight bill factoring is a financing option frequently used by trucking companies and freight carriers. Those in the freight transportation business must always maintain cash flow sufficient to fund critical expenses such as driver salaries, fuel, insurance and equipment maintenance. By selling their accounts receivable to a factoring agent, trucking companies gain access to immediate infusions of cash that facilitate continuous operation. To maximize the potential benefits of freight bill factoring, some of the best tips include shopping for the fairest and most affordable fee structures, ensuring that customers will be treated respectfully throughout the collection process, and verifying the factoring agent's ability to provide rapid turnaround for all financing requests.

Fee structures and contract terms offered by freight bill factoring companies can vary significantly, making it worthwhile for a trucking company to research multiple potential service providers. Once a freight bill is sold, the amount of the outstanding payment advanced to the trucking firm varies based on the policies of the selected factoring firm. Therefore, it is wise for freight companies to seek factoring agents willing to pay the greatest portion of the invoice amount immediately, holding only a small amount in reserve until collection efforts are successful. Factoring companies will then subtract their fee from the reserve amount to be returned, so it is equally important for trucking firms to shop around for factoring agents offering the lowest fees.

Trucking companies eager to take advantage of freight bill factoring should carefully scrutinize the contract terms offered by prospective factoring firms before making a selection. It is important to know whether the relationship will be a recourse or non-recourse agreement. In a non-recourse arrangement, the factoring company assumes the risk of unpaid invoices, whereas with a recourse agreement, the risk remains with the trucking firm. Many factoring firms require long-term contracts that include hefty early termination fees and exclusivity clauses prohibiting the trucking company from engaging the services of other factoring agents. Thorough research and comparison shopping by freight companies can help them avoid such pitfalls when selecting a factoring company.

Once they purchase a trucking firm's accounts receivable, freight bill factoring agents assume all collection activities relating to those invoices. This arrangement means the factoring firm will have direct interaction with the trucking company's customers, making selection of just the right factoring agent that much more important. Freight companies should conduct sufficient research to ensure that the prospective factoring firm utilizes a respectful collection approach that does not jeopardize valuable customer relationships.

Finally, freight companies interested in securing freight bill factoring services should identify those firms able to provide rapid turnaround on financing requests. Freight factoring differs from traditional lending in that qualification depends largely on the credit worthiness of the trucking firm's customers, rather than of the firm itself. Quality factoring companies must, therefore, have access to market information and credit analysis tools necessary to make quick funding decisions. Continuous infusions of cash are essential to the operation of any trucking firm and, therefore, a factoring agent's ability to make timely transactions is essential.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
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