The use of transportation factoring companies by independent trucking operators is a way to even out their cash flow, and not have to wait to be paid later by a customer or a broker. The factoring company pays you immediately for your invoices and then collecting the freight bills from the customer or the broker, for a fee. Factoring does not create a debt as it is not a loan, it is simply an advance payment.
There are many truck factoring companies who require a certain volume of business in order to do a factoring transaction and to continue processing them. Some of these minimums can amount to $25,000 to $50,000 per month. Some owner-operators and smaller trucking companies can have difficulty reaching that amount, so there is a definite need for factoring companies who will accept less.
There are companies who do not have such limits and there are also companies who offer additional benefits such as fuel discounts, free credit checks on shipping companies and brokers, so it is in your best interest to shop a bit for the best deal.
Also a bit of caution is in order so that when you do make an agreement with a factoring company, make sure that you understand the terms of the contract. Many companies will have “hidden” fees in addition to the ones that they advertise. Since the fees come out directly against your profits, you want to make sure that you understand everything before you sign a contract.
Even though there are oral sales points that are very convincing, you will find that when you sign on with transportation factoring companies, it is the written contract that will prevail. Just be sure and read everything very thoroughly and be sure that you can live with it.
It is not a bad idea to run the contract past your attorney if there are parts that you do not understand. For example you have to authorize the factoring company to collect money from your customers. Be sure that you understand the terms of severing the contract so that when you sever the contract you do it in time so that they are still not able to collect money from your customer.
Another good tip when dealing with a factoring company is to not obligate yourself to a long term contract. If you do, you might get into a situation that you hate and there will be no way out of it. Even the factoring companies will tell you that you really need to read and understand the contract.
Get references about any factoring company that you are considering. Do they go after customers that don’t pay, and is that in the contract, and does the contract hold them responsible? If not, you could be held responsible and their funding could diminish by the amount owed.
A good factoring company should be able to tell you timely when customers are not going to pay and invoices will be rejected before you pull a load to that customer. Referrals from others who are using a factoring company successfully is the way to go.