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Choosing the best factoring company for your trucking business

Posted on October 02, 2017 in Transportation

There are so many factoring companies offering financial services for trucking companies that is has made it more difficult to determine what attributes you should consider when it comes time to select a factoring company for your trucking business.

In order to determine if a factoring company is the right fit for your trucking agency, we will have to look back at how the trucking industry has evolved along with the invoice factoring industry. If you have been around the transportation and trucking industry for a while, you may recall the days when everything was done by phone, beeper and fax if you were lucky to have one. In those days there was no email, cell phones, GPS, fuel cards and many other beneficial devices and services that are here today to help trucking companies succeed. All businesses expand and invest as they grow and look for more efficient methods while keeping cost down and production high.

Cash flow shortages in the trucking industry still exist today as much as it did back then. Even with all these gadgets and digital enhancing devices, freight bills still get paid in a slow manner causing extreme cash flow issues for trucking companies.

Traditionally trucking companies would get a dispatched order by Fax or a phone call from a shipper, but with today’s trucking market it will be more likely an email from a freight broker working on behalf of a shipper or a notification from an online Trucking Load Board Service.

The loads being dispatched to trucking companies are moving on a fast pace but incredibly the payment of invoices is slower today than it was 10 years ago. Due to the slow payments from freight brokers and shippers, trucking companies have had to search for companies that specialize in funding invoices on credit terms called Factoring Companies. An invoice for a completed load that has been accepted by the client is an immediate business asset for the trucking company that can be pledged as collateral for funding. The funding is usually done by the factoring company purchasing the invoice from the trucking company at a discount, averaging anywhere from 1.5% to 5% depending on the sales volume and advance rate.

How the electronic communications and digital forced the industries to evolve, and others have fallen behind

Before the digital age became popular in the trucking and factoring industry, the funding process was very slow and involved a lot of paperwork, mailing, and phone call verifications. A trucking company was required to submit ORIGINAL paper work for the load transaction. This involved a lot of time and cost for both the trucking and factoring company. Incredibly there are still factoring companies  and trucking companies operating in the past, trucking companies are uninformed about the options now available to them and there are some factoring companies resisting change, lack financial resources to invest in the digital age and refuse to evolve.

A comparison of the process for factoring in the past and now present:

  1. Past: Freight Broker/Shipper had to be approved by phone or fax in order to factor the invoice.
    • Too much time elapsed and the trucking company would lose load commitments to competitors.
    • More employees needed and the data was weeks old.

          Present: Online access to credit approvals in seconds

  • Allows real time accuracy, and immediate booking of a loads if needed.
  • Less people needed, credit limits assigned electronically.
  • Less bad credit decision losses
  1. Past: Original Paper work required for Funding
    • One week delay in funding due to mail, locking up 5 working days of cash flow in the transit of mail.
    • FexEx cost in sending originals to trucking office from drivers, then to factoring company form office, then regular mail to shipper/freight broker from factor was actually more expensive than the financing of the invoices.
    • Freight Brokers would require originals to float more days to pay the carriers.

           Present: No Originals needed

  • Drivers can scan bills of lading immediately after delivering a load, email scan to trucking office, office generates invoice and attaches scanned bill of lading, sends to factor and gets funding the same day cutting out all mailing cost and accelerating 5 working days of cash flow.
  1. Past: Fuel purchases and handling of accounts
    • Drivers carried a wad of cash in the truck for fuel and everyday expenses.
    • Drivers had to use a Visa/Mastercard and pay a higher price for fuel
    • Inaccurate tracking on fuel cost per power unit and state fuel taxes.
    • Trucking companies had to wire cash to drivers adding wire cost.

          Present: Fuel Cards and factoring companies changed everything

  • Fuel Cards provide tax reporting software per power unit
  • Cash price at the pump and volume purchase rebates
  • Factoring Companies are able to direct deposit into fuel accounts saving time and money on wire bank fees.
  • Factoring companies now have Fuel Cards that provide group discounts.
  • Drivers can be setup with a limit on fuel and daily expenses.
  • Factoring companies have Fuel Advance programs if needed.

Choosing from the best factoring companies for your trucking company involves research in asking the right questions:

  1. What is your minimum monthly factoring requirements?
  2. Do you offer a fuel card program?
  3. Do you offer fuel advances and if yes, how much does it cost?
  4. Do you fund on scanned images or copies? If no Hang up.
  5. How long does it take to get funded once you receive all the scanned invoices/bill of lading?
  6. Do you have an online/real-time reporting for my account?
  7. How do you calculate your fees per invoice financed?
  8. How long do you hold on to my reserves?
  9. Do you offer online credit checks for account debtors? If yes, is it free or is there a charge?
  10. How long have you been in business?
  11. How many trucking clients do you have in your portfolio?

It is important to choose a factoring company that specializes in the trucking industry and that is shows continuing effort in keeping up to date in technology in order to help their clients.

1st Commercial Credit, LLC is a factoring company helping business with cash flow. Over 15 years in business, specializing in funding receivables for small-to-medium size businesses, including temporary staffing firms, trucking companies, manufacturing and service providers.