Factoring
Understanding Factoring for Trucking Companies
Factoring is a financial service that allows trucking companies to sell their invoices to a third party (a factor) at a discount. This service provides immediate cash flow to the trucking company, enabling them to cover operational expenses such as fuel, maintenance, and payroll without waiting for customers to pay their invoices. Factoring is a valuable tool for managing cash flow and supporting growth, especially for small to medium-sized trucking businesses.
How Factoring Works
- Invoice Submission: The trucking company submits its invoices to the factoring company.
- Cash Advance:The factoring company provides a cash advance, typically 70-95% of the invoice value, to the trucking company.
- Customer Payment: The customer pays the invoice amount directly to the factoring company by the due date.
- Balance Payment: The factoring company then pays the remaining balance to the trucking company, minus a factoring fee.
Popular Factoring Companies for Trucking
1. Triumph Business Capital
- Pros: Offers both recourse and non-recourse factoring options; known for excellent customer service and additional offerings like fuel discount cards.
- Cons: Fees can be higher than some competitors, especially for non-recourse factoring.
2. TBS Factoring Service
- Pros: Friendly to small businesses and new startups; offers fuel advances and a variety of other services.
- Cons: Their contract terms can be less flexible, with a minimum volume requirement.
3. RTS Financial
- Pros: Provides high advance rates and integrates other services like fuel card programs and maintenance discounts.
- Cons: Might require a long-term contract, which could be a downside for companies seeking more flexibility.
4. Apex Capital Corp
- Pros: Known for their client portal that offers free credit checks on brokers and shippers; also offers a mobile app for managing accounts.
- Cons: Apex's services might come at a premium cost compared to other factors.
5. Riviera Finance
- Pros: No long-term contracts or minimum volume requirements, making it a good choice for flexibility.
- Cons: Advance rates and fees may not be as competitive for larger invoices or volumes.
Considerations When Choosing a Factoring Company
- Recourse vs. Non-Recourse: Understand the difference between recourse factoring (where you're responsible if the client doesn't pay) and non-recourse factoring (where the factor assumes most of the risk).
- Fees and Rates: Compare the fees and advance rates. Some companies may offer lower fees but provide a smaller advance on the invoice.
- Additional Services: Evaluate the additional services offered, such as fuel discounts, maintenance discounts, and credit checks, which can add value beyond the basic factoring service.
- Contract Terms: Be aware of the contract terms, including the length of the contract, minimum volume requirements, and termination fees.
Conclusion
Factoring can be a powerful tool for trucking companies looking to improve their cash flow and grow their business. By understanding the pros and cons of different factoring companies, trucking businesses can select a partner that best fits their needs and helps them achieve their financial goals.