Partnering with the best factoring companies for trucking companies can provide benefits for trucking companies in different ways throughout the company. As the trucking industry continues to grow and become a more competitive market, trucking companies must seek out resources to gain an advantage and grow business efficiently. A freight factoring company can provide assistance, especially with trucking companies that lack the capabilities or staff to manage everything. Especially for small trucking businesses, freight factoring can help increase cash flow, handle back-office tasks, and help with verifying the liability of freight brokers and shippers. It is all about who the factoring company is and what they have to offer.
I. What Is Factoring in Trucking and Why Does it Matter?
For smaller trucking companies, waiting for payment or gaps in income can result in financial difficulties. Freight factoring can close these gaps and provide more efficient cash by providing trucking companies with same-day or next-day payment of invoices. With dactoring services for trucking companies, invoices are outsourced for a small fee. This takes the accounting burden off management’s plate. Carriers will sell invoices to factoring companies to receive payment quicker than the average time frame. According to Grand View Research’s recent Market Analysis Report, “The global factoring services market size was valued at USD 3,235.88 billion in 2020 and is expected to expand at a compound annual growth rate (CAGR) of 8.4% from 2021 to 2028.” With this level of demand and growth potential, it is easy to see that factoring services are a critical aspect of trucking and transportation.
II. How Does Factoring Work in Trucking Operations Today?
Freight factoring essentially shortens the payment clock, allowing trucking companies to receive payment quicker by buying invoices. To work with a factoring company, first the trucking company must haul the load and submit the needed paperwork to a factoring company rather than a broker. The trucking company will then receive payment right away or the following day. The trucking companies’ broker will then pay the factoring company roughly within 30 or 90 days.
One thing many people in other professions or those who are new to the trucking industry fail to realize is that the cost of operating a truck is roughly 70% of the price per mile for transport. This means that for every $100 earned on a shipment, only $30 or less can be counted as profit and used to secure additional loads and acquire new customers. This extreme pressure makes it even more difficult to keep things moving forward and to sustain day-to-day operations and services. Freight factoring can help improve this with better financing and cash flow assistance.
III. Why Trucking Companies Turn to Factoring Services
Starting a trucking company or striving to grow a smaller business requires strong cash flow, avoiding debt, and accurately tracking invoices. Small trucking companies especially use factoring companies for truck drivers when they struggle with finances or want to expand a business. As the business continues to gain more opportunities for hauling, more equipment and drivers will be needed. Without the needed cash in pocket, small or starting out trucking companies will have a difficult time evolving. Owner-operators or companies with five or fewer trucks may use factoring to seek out a flexible option for some invoices or when convenient.
Aside from the internal company-specific benefits of factoring services, trucking companies can also easily take steps to reduce deadhead and wasted trucking miles. Not only can this help maximize the profitability of truckloads and shipments for the company, but it can also improve carbon impacts and help truckers make a move toward greener, more sustainable routes and transportation services. A recent report from Convoy highlights that “heavy-duty full truckload freight accounts for more than 205 million metric tons of CO2 emissions per year. Today, 72 million metric tons of CO2 equivalent emissions are the result of empty miles.” Reducing carbon emissions, lowering environmental impacts, and streamlining trucking operations can help not only improve bottom-line profits but can also increase revenue by enticing more customers to the company.
Understanding how does factoring work in trucking and what all is involved in the process and what services are available can help improve transportation services and ensure truckers, whether owner-operator or company employed, get high-paying loads and are able to maximize profits. As the trucking industry continues to grow, the competitiveness of the market will continue to force trucking companies to seek out new means for gaining an advantage and growing their business efficiently. This is why more and more trucking companies turn to freight factoring service providers.
1. A Freight Factoring Company Lessens Credit Risk for Trucking Companies and Drivers
For smaller trucking companies, software might not be available to check the credit of shippers and freight brokers. As a result, companies might choose partners that can cause financial problems due to bad credit. One load with delayed payment can have a huge impact on credit score and the trucking company. Such a negative effect can reduce cash flow, which could cause issues with paying for equipment, hiring drivers, and gaining new shippers.
This is where trucking factoring services can help. Freight factoring can offer services to manage payment collection and back-office tasks for trucking companies. Before finalizing a partnership, a factoring company can check the credit score of any broker or shipper to determine their ability to pay. A freight broker or shipper with a higher credit score is seen as low risk and understands the importance of paying the carrier on time. A freight factoring company can take the burden of credit checks off the trucking companies’ hands, which can help owner-operators the most to focus on other drivers and the road rather than back-office tasks.
2. It Alleviates the Work of Collections, Saving Back-Office Resources
Handling back-office tasks can add stress for any company, especially as business continues to grow and gains more shippers. Some companies lack the staff or ability to manage all the tasks it takes to grow the business independently. Companies using freight factoring for trucking companies also gain the advantage of managing fewer back-office tasks. The company that does the freight factoring will handle the invoicing and collection of the profit while communicating with brokers, shippers, and freight forwarders regarding the payment status.
Some trucking companies lack the capabilities to manage trucking, collection of payment, and other back-office tasks. Few smaller trucking companies or owner-operators have the time to handle all the back-office tasks of collecting payment, communication with partners, and running credit checks on brokers and shippers. Factoring companies can take the burden of billing and collecting from companies that received hauls. Owner-operators will have the opportunity to focus on the road or finding better-paying freight and spend less time focusing on finances.
3. Freight Factoring for Trucking Companies Streamlines Invoicing
Normally a shipper or freight broker does not automatically pay a trucking company once a load has been delivered. Carriers can wait roughly 30-90 days to receive payment for the load, which can have negative effects on its business. For smaller trucking companies, starting out trucking companies, and owner-operators, such a gap in income can make or break the company’s budget. Rather than taking this risk and adding stress to the trucking company, factoring services for trucking companies can help shorten the payment clock.
A freight factoring company will purchase the invoices of the load and provide payment to the carrier on the same day or next business day. The factoring company, not the carrier, will wait for payment. Selling invoices to a factoring company increases the carrier’s cash flow that can be used to cover expenses without the worry of taking on more debt.
4. Less Time Managing Payments Means More Drive-Time
In such a competitive market, gaining an advantage can help any trucking company, regardless of size or volume or loads already hauled. However, for owner-operators, juggling back-office tasks, the continuously changing market, and trying to drive for the company can be a lot to manage. Companies have to try to handle communication and collection of payment, running credit checks, and trying to find more hauls. All these tasks and more can add stress to new companies. The best factoring companies for the trucking industry can provide back-office help and allow owner-operators to focus on driving hauls and finding better freight.
5. The Average Cost to Run a Truck Is Higher Than Just Gas
As the market continues to change, a trucking company’s costs can quickly add up. To deliver a load, every step and cost must be taken into consideration and thoroughly understood. Especially for trucking companies just starting out, owners must understand the different costs. Some will depend on the size of the fleet and the amount of loads the business can manage. However, owners must understand costs associated with maintenance, fuel, paying the drivers, and more.
Factoring companies for truck drivers and trucking companies can provide an easier way to ensure income at a steady rate to increase cash flow. Starting out, trucking companies or owner-operators have the stress of handling costs and income, while trying to seek out new freight. Utilizing trucking factoring services and selling invoices can increase the companies’ income to ensure the costs to haul a load is covered.
6. Factoring Is Ideal for Startups
Starting a new trucking company often requires an upfront amount of cash to cover the costs associated with delivering a load. The owner must have enough cash to cover the costs of fuel and other expenses, before receiving payment for any load. Securing such a large amount of money can be challenging for new or small trucking companies, especially when trying to obtain money from a bank without having a promising credit history. Working with a bank has the risk of more payments on the balance sheet, resulting in thousands of dollars spent in interest payments.
Using services in the factoring trucking industry can streamline invoices to help small and new companies avoid bank loans. The application process for invoicing can take a few minutes, and some companies can provide the advance amount of money on average in a day. This allows for companies to receive the invoice paid in advance, which can help companies with that first amount of money needed.
7. Factoring Lets Truckers Expand Their Shipper and Broker Networks With Less Hassle
Starting a trucking company already has enough difficulties. Trying to expand the shipper and broker network certainly adds to this. Especially for owner-operators, finding the time to find new freight to haul can be challenging with other tasks.
Freight factoring for trucking companies can provide assistance to owner-operators and trucking companies that are trying to find freight brokers and shippers to work with.
What to Look for in a Top-Quality Factoring Service
When the time comes to find a quality trucking factoring services provider, it is important to have a clear vision of your wants and needs. There are key points to consider during the search that can streamline the entire process and make financing, invoicing and factoring fast and easy. Keeping these in mind will help logistics managers and shippers alike improve cash flow and keep the supply chain moving smoothly and efficiently. Freight factoring can make the process of payment tracking and management more efficient by providing trucking companies with enhanced payment and financing options that include same-day or next-day payments. Factoring services for trucking companies allows for invoices to be outsourced for a small fee, which can take the accounting burden off management’s plate.The following eight points are worth keeping front and center when looking for the best factoring companies for truckers:
1. Ease of Contract Termination or Renegotiation When Necessary
The one thing that stays the same for the trucking and shipping industry is that things always change. Even long-term contracts will eventually come to an end or need to be renegotiated. Working with a freight factoring company can help this process run smoothly, no matter when or how it occurs. Ending contracts and renegotiating expired contracts can be a delicate process and there is a lot riding on it. So working with an experienced third party can help bridge that gap and make the process simpler for everyone involved with the trucking business.
2. Ready to Deploy Systems That Require Minimal Setup or Onboarding
When the time comes to find outside assistance with financing, invoicing, and cash management, the right factoring company for truck drivers can make a world of difference. These professionals bring years of experience and training and can help streamline the entire process right from the start. They can help with onboarding and setup and help the entire team adapt to the new platforms and systems faster than what would otherwise be possible. Freight financing and management services makes integration and collaboration easier.
3. Minimal Fees and Costs Associated With Factoring and Invoicing
Working with a professional factoring service provider can also help reduce costs and expenses. Fees charged by these companies are often far less than what would be paid during normal invoicing and payment processing. So not only are funds often accessible sooner, they are also often maintained at a higher level to improve cash flow and assets. Tapping into the services provided by the factoring trucking industry can help managers and directors boost profits and manage fees and expenses more easily day in and day out.
4. Expertise in the Freight Industry to Boost Industry Reputation and Standing
Another benefit that comes from joining forces with freight financing and factoring providers is that truckers get a much needed boost in their standing with customers, as well as a designation that can set them apart from the competition. In volatile markets and competitive industry niches, having the backing of experienced industry pros can do wonders for a company’s reputation. That alone is often worth any upfront costs associated with a partnership with a factoring company for truck drivers.
5. Streamlined Invoicing by Building an Invoice Within a Factoring Service
Automation has become more common than ever and is to the point where it is more a necessity than an added perk for the trucking industry and drivers today. Building invoice templates for repeat customers with regular loads and orders can save a great deal of time and hassle. It can also improve payment processing and reduce invoicing errors. Likewise, automated invoice creation within a factoring service can also improve functionality and accuracy when it comes to creating, sending, tracking, and finalizing invoices.
6. Embedded Data Analytics to Track Trucking Company Performance
Another benefit drivers can enjoy from working with one of the top factoring companies for trucking networks is having access to analytical tools and tracking metrics from start to finish. Collecting and analyzing data about expenses, profits, invoices, payments, and fees can shed some much-needed light on possible problem areas that exist within the trucking network. Company performance can be more easily tracked and measured against past metrics to look for signs of growth, stagnation, or decline early enough to do something about it.
7. Access to Certified, Prequalified, Pre-Approved Brokers When Needed
Resources, including time, money, and man hours, are wasted when doing paperwork and similar managerial tasks. FInding brokers to help facilitate collaboration between shippers and carriers can take a great deal of time in some cases. Working with freight factoring providers allows for easier access to pre-qualified and pre-approved brokers who need no training and onboarding. Bringing on approved brokers who can get to work right away will greatly reduce expenses and ensure cash flow starts up sooner rather than later.
8. Same-Day Deposits and Improved Cash Flow Management Throughout
Another benefit truckers and logistics managers can enjoy from the best factoring companies and the services they offer is the possibility of same-day deposits. With the factoring company backing the invoice and taking on the risk of fighting for invoice payment, it allows trucking companies to enjoy faster payments and better cash flow opportunities. Factoring services for trucking companies make financial management easier and more streamlined which allows for bigger opportunities for growth, expansion, and success.
Improve Cash Flow by Partnering With One of the Best Factoring Companies for Trucking Companies
All of these trucking factoring services can have a huge impact on trucking companies and truck drivers across the board. A freight factoring company offers a variety of essential services for truckers and can provide assistance to trucking companies that are unable to manage everything in-house efficiently. These services can be especially vital and really be game-changing for small trucking businesses. Freight factoring can help increase cash flow, reduce wasted man hours and resources, streamline managerial tasks, and help with the collaboration between freight brokers, truckers, carriers, and shippers. Freight factoring helps small-scale truckers and transportation companies close the gaps in their cash flow and financing cycles with innovative payment options. Factoring services make the entire process easier and more profitable, which is why they are in such high demand. Contact Basic Block today to get started and to enjoy the benefits that can come from a partnership with an industry pro and find the best freight factoring for trucking companies available to you today.