When a load is delivered by truck, the owner-operator or trucking company receives a signed paper confirming receipt. The signature from that customer indicates they have accepted the load and delivery. It also means they need to pay. But getting that payment isn’t usually instantaneous.
In fact, it may be weeks or even months before you even see a dime. With bills coming up and the need to fuel up your trucks for the next load, it can really put you in a bind. That’s why many small trucking companies rely on factoring companies to get paid more quickly.
How Do Factoring Companies Work for Truckers?
With factoring in the trucking industry, you sell your invoices to a factoring company that takes over collecting and processing the accounts receivable. Usually, you’ll be paid nearly all of the earnings of that load in a matter of a few days. In exchange for this service, the factoring company collects a small percentage as a fee.
But it’s more liberating for you as the owner of a small trucking company because that invoice is one less weight on your shoulders. It allows you to keep going with cash flow while the factoring company takes care of the rest.
What Is Needed to Qualify for Trucking Factoring?
It’s incredibly simple to start using factoring as a tool for your small trucking company. You just need to be the owner or work as an owner-operator, and you need to have customers with good credit.
Using factoring helps small trucking businesses take off because your financials and credit score are not considered here. It’s all based on your customers’ credit ratings since they’ll be making the payments. Some of them may not qualify for factoring though, so it will be up to you if you want to make other payment arrangements with them or decline to work with them.
Factoring is a smart way to keep from going into debt since it protects you from customers who don’t pay on time—or not at all. This is why factoring has such a huge role in the trucking industry. Many companies use it because they need cash flow to operate day to day. You’re only giving up a small percentage of your cash per load in exchange for getting a guaranteed payment in a matter of days, which is worth it.
The Difference Between Recourse and Non-Recourse Factoring
If you’re considering factoring for your trucking business, you will also want to know the difference between recourse and non-recourse factoring. With recourse factoring, factoring companies take a lower percentage of your invoice. That may sound fantastic since it means you will get more money in your pocket.
However, if they can’t collect the payment from your customer, then you must buy back that invoice. This is not exactly ideal when you need to maintain your cash flow. Additionally, if the factoring company wasn’t successful in collecting the money from that invoice, you might as well kiss that payment goodbye.
By contrast, there are factoring companies that offer non-recourse factoring. If your customer doesn’t pay the invoice, you will not be held liable for paying it. The catch with this type of factoring company is that you get a larger cut taken out of your invoice’s value.
Still, that cut is much smaller in comparison when you think of the security that it buys you to keep on truckin’ for the long haul.Click for more information about factoring for your trucking business.