IMPROVE YOUR CASH FLOW

What is Factoring? Let’s be honest, the idea of factoring can be confusing and scary but once you understand it and make use of it, it can be the best thing you do for your business. A factoring company is a third party or financial company that purchases your invoice after you drop a load. The factoring company pays you for the invoice (minus a small factoring fee) and you get paid within 1 to 2 days instead of 30-60 days. It then becomes the responsibility of the “factor” or financial company to get paid on the invoice. You will be able to better manage your trucking business because you got paid faster and are not waiting for a check in the mail.

Factoring Frequently Asked Questions

All the information you need to know

You, the carrier, haul a load. Your M&J truck dispatcher submits the paperwork to your factoring company instead of the broker for who you moved the load. You receive payment from the factoring company for the load minus the factoring fee. The factoring company will contact the broker to work out payment for the invoice. The broker will pay the factoring company and not the carrier.

  • Immediate cash flow
  • Your credit score doesn’t matter, it isn’t a loan
  • Because this isn’t a loan, you will not be accumulating any more debt
  • By allowing your M&J Dispatcher to handle all your paperwork you will save time for more important things
  • Help to eliminate costly fuel advances
  • Your M&J Dispatcher will partner with your factoring company to perform broker credit checks to ensure the load you take will pay out.

As mentioned above, there is a contract associated with factoring.  The length of the contract is usually 3, 6, or 12 months.  The length of the contract varies with each factoring company. Make sure to ask about the length of the contract and know what you are signing for.  You will be charged an early termination fee if you stop factoring, keep this in mind and know what the fee is before committing to a factoring company.

Non-recourse factoring protects the carrier in the event that the invoice that was factored in does not receive payment from the broker. The carrier is not liable for non-payment of the factored invoice unless they are at fault for non-payment. These types of contracts are more costly and are quite limited on what they cover.

Recourse factoring holds the carrier responsible for the unpaid invoice in the event that the factoring company is unable to obtain payment from the broker. The factoring company will ask the carrier to purchase back the invoice if the invoice isn’t paid within a certain time frame.

Factoring fees come in all shapes and sizes. Basically, there are two categories for fee structure, the fixed-rate and the variable rate. Rates typically run between 1.5% to 5% depending on the factoring company and your factoring risk. Low-risk clients who factor in larger dollar amounts are more likely to receive a lower factoring fee than a client who factors in a lower dollar amount. The fee to factor is also subject to the amount of liability you, the carrier, choose to take on along with the risk of the load and your track record (do you submit your invoices in a timely manner?). As a single owner-operator or an owner of a small trucking company with less than 4 trucks, we suggest negotiating a fixed rate fee structure. A fixed-rate is easier to budget your expenses and you do not have to worry about meeting a certain quota each week to keep your variable rate from increasing.

  • ACH transfer fee – a factoring company will charge you a fee to put money into your bank account. This fee can range from $3 to $25 depending on the terms of your contract.  You may pay a per-day ACH fee or a per invoice ACH fee.  Our advice is to make sure you understand the terms of your contract before signing on the dotted line.
  • Aging Invoice Fee– If the broker takes too long to pay the invoice, your factoring company may charge you an aging fee.
  •  Minimum factored amount fee – A factoring company may charge you a surcharge if you do not meet the required factored amount or a minimum number of factored invoices for the set period of time.
  • Credit check fee – The broker you are hauling for will be credit checked by your M&J Dispatcher and your factoring company.  Some factoring companies will charge you a fee for this service.
  • Early Termination Fee- A factoring company will require you to sign for a length of terms in your contract.  That length of terms could be 3 to 6 months or even 1 year. If you decide to stop factoring before your contract is up, you could be charged a fee of $1,000 to $5,000.  We advise that you know what is in your contract before committing to any length of terms.

  1. You may need to meet a minimum credit score (which is determined by your factoring company) to be eligible.  This is not common, so if this is an issue for you, we advise you keep looking until you find a factoring company that will accept you.
  2.  Your trucking company will need to provide a yearly projected income, this will determine your rate. This is also known as your sales volume.
  3. Your total number of customers will influence your rate.  The more diverse your customer base, the more likely you will be hauling freight all year long.
  4. The size of your invoices.  Factoring companies like larger invoices versus smaller invoices.  It costs a factoring company more money to collect on several smaller invoices than one large invoice.  The larger your invoices are the lower your rate will be.  This basically means you want to run longer hauls versus shorter hauls.
  5.  The length of time your customer takes to pay can affect your rate, the sooner the customer pays the lower your rate will be.
  6. It is important that your clients are credit worthy, factoring companies will not accept invoices from clients who they don’t think will pay.
Some of these will not prevent eligibility but they WILL increase your rate with the factoring company. 

The answer to this question can be complicated. The quick answer is NO, you do not have to factor every load. If your contract with the factoring company has a minimum amount to factor (this is determined when you set up your contract), you may need to factor every load in order to reach that set minimum. If you do not have a minimum amount to factor or you have more invoices than needed to reach your minimum amount to factor, then you can make the decision of which invoices to factor and which invoices you do not a factor.

Most factoring companies will process your payment within 1 or 2 business days. Each factoring company has a daily deadline, if you meet the deadline you will get paid the same day but if you miss the deadline they will not process your payment until the next business day. Most factoring companies have a deadline between 11 am and 12 pm.

You will need to supply them with the required paperwork which usually includes:

1) Signed BOL

2) Rate sheet (Rate confirmation)

3) Scale tickets (if available)

4) Lumper Receipts (if needed)

5) Invoice (if required by factoring company)

Some brokers will offer a quick-pay option on THEIR loads which pay you for the invoice minus a small fee. The small fee is typically anywhere between 1% to 7%. You will usually receive this payment within 1 to 5 business days. However, we have heard it can take much longer to get paid.

What are the pros/cons of using quick-pay?

  •  The biggest advantage to using quick-pay is NO CONTRACTS.
  • Not all brokers offer the quick-pay service, therefore, limiting you to which broker you can haul for and ultimately which loads you can take.
  • The biggest con we can see is that your options are limited to which loads you can haul.
  • You also need to be very organized to do quick-pay.  You will quick-pay with multiple brokers and you will need to keep track of all the paperwork and if it has been sent in, along with which broker has paid you and which has not.
  • The other big advantage that we see is that you are not liable for an unpaid invoice, there is no recourse.
Why would you factor instead of using quick-pay?
  • The biggest advantage to factoring is that you can factor in any credit-approved broker, which opens up your options and allows you to take any load you want versus only using a broker who offers quick pay.
  • You do not need to be so organized, your M&J Dispatcher will send all the paperwork to your factoring company (for an additional fee) and all your invoices will be in one place.
  • You will get paid FASTER! Most times it is the same day or the next day at the latest.
  • Factoring is usually more affordable because you are charged the same rate with each invoice versus having a different rate depending on which broker you are quick-paying with.

Bottom Line:  You need to do what is BEST for your business.  If you need help making this decision, let us know at M&J Dispatch and we will help guide you to make the best choice for your trucking business.

Some Of The States We Serve

Georgia Truck Dispatch Factoring | North Carolina Truck Dispatch Factoring | South Carolina Truck Dispatch Factoring | New York Truck Dispatch Factoring | Indiana Truck Dispatch Factoring | Virginia Truck Dispatch Factoring | California Truck Dispatch Factoring | Florida Truck Dispatch Factoring | Illinois Truck Dispatch Factoring | Missouri Truck Dispatch Factoring