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Q&A: Freight factoring tips for small fleets

It helps boost cash flow, but carriers need to do their homework before fully jumping into a freight factoring arrangement.

Many trucking companies – especially small to medium-sized carriers – use freight factoring to help generate faster cash flow, especially as the payment terms for many freight brokers and shippers can be as long as 30 days or more.

But what are the hallmarks of “good” factoring firms? And do you – the trucking company – fully understand the financial “lingo” used by factoring companies, such as knowing the difference between “all-asset” liens and “accounts receivable” liens?

Those are just some of the things Sherry Leigh, marketing director for Apex Capital, believes carriers should fully grasp before getting into factoring contracts.

American Trucker got a chance to ask Leigh for further advice on factoring, and here are a few tips she shared:

Provide a thumbnail of what factoring is and how it can help a small to medium sized carrier generate cash flow.

Sherry Leigh, marketing director, Apex Capital

A freight factoring company purchases account receivables for a fee. Factoring allows carriers to get paid faster. It is especially helpful for managing cash flow when a carrier is working with brokers or shippers with payment terms of 30 days or more.

Why is generating cash flow from factoring so important?

Factoring provides trucking companies with fast and reliable cash flow through the purchase of freight bills, so they can keep their business running. With numerous upfront or scheduled expenses such as fuel, tires, insurance, truck payments or payroll ─ sustaining positive cash flow is crucial to the success of any trucking company.

Talk about some of the markers that distinguish the ‘reputable’ factoring firms from the rest – what things should carriers look for?

Carriers should look for a factoring company that specializes in the trucking industry. It is important to work with a company that knows the industry, including the regulations and challenges that carriers face.

Make sure the company offers strong customer service. A carrier will work closely with their factoring company so it is important to find out if the they will assign a dedicated representative or team to the carrier ─ someone to build a relationship with that will have a thorough knowledge of their account.

Carriers should look for a factoring company that offers fast credit checks that tells them exactly how much (in dollars) a broker, shipper, or freight forwarder is approved for. They’ll want detailed information, so they can make better informed decisions about who they haul for.

Most importantly, a carrier should ask their customers for referrals. Brokers and shippers work with many different factoring companies every day, so they know a lot about each of them.

Carriers should also ask for referrals from friends and colleagues, and research options online.

The most important thing a carrier should do when deciding which factoring company to work with is to read and understand the factoring contract. Know the difference between and “all-asset” lien and an “accounts receivable” lien [FYI: a “lien” is the right to keep possession of property belonging to another person until a debt owed by that person is discharged] and only work with a factoring company that files an accounts receivable lien.

A carrier should read the contract closely to find answers to the following questions:

  • What type of lien is being filed?
  • Is this a long-term contract?
  • Does the factoring company collect on invoices? If so, are they aggressive or do they build relationships with your customers and treat them with respect? 
  • Is there a monthly minimum that must be factored? If so, what is it and what are the penalties for not meeting the minimum?
  • Is there a termination fee? If so, what is the fee and how much notice does the factoring company require to terminate?

What are the “day-to-day” management requirements on the part of carriers is when factoring freight bills?

Carriers should utilize their factor’s credit check services before hauling a load, paying close attention to an exact dollar amount they’re approved for. Once they’ve hauled a load, carriers should send in their paperwork as quickly as possible to the factoring firm to get their funds.

A successful carrier is one that stays on top of getting paperwork from their drivers and makes sure it’s complete before sending it to the factor. One way to do this is use smartphone applications. For example, Apex offers our clients a free “Mobile Factoring” smartphone app that drivers can use to take pictures of load paperwork and then send to their company owners, who can create and submit the invoices to Ape – all via a smartphone or tablet computer.

Carriers should also be proactive with their account and pay close attention to their aging, reserve balance, fuel bills and recent payments.

A good factoring company will offer clients a dedicated representative or team to answer questions as well as an online website to access their account on a 24/7 basis.

That website, by the way, should provide complete transparency to the carrier so they can see what’s going on with their account at any time. It should also allow the carrier to create invoices, store documents, access important information and run reports to make sure their account is in good standing.

To play devil’s advocate: in this highly digital age, factoring seems a relic of the past. Is that true or not? Is it actually a practice more critical to trucking companies today in the digital age?

The digital age has probably created more of a need for factoring. With today’s technologies, payment for fuel, services and other expenses can be debited from an account in the blink of an eye.

However, on the flip side, some brokers and shippers still have 30-day or more payment terms. So the carrier is required to pay faster, but not necessarily get paid faster.

Some factoring companies – not all – have embraced the digital age to offer carriers more tools so they can get paid even faster and run their businesses more efficiently. Some factoring companies allow carriers to send proof of delivery paperwork digitally, which means carriers can send paperwork from the road or get paperwork from their drivers with much less hassle.

Some factoring companies also offer websites or mobile apps so carriers can access their account when it’s convenient for them. Some factoring companies have even created other tools to help carriers be more efficient, such as: fuel finders, load boards, online invoicing, document storage, and document reporting. That makes it more convenient to operate a trucking company from any location, at any time.

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