Transportation factoring is a common practice regarding commercial trucks. It is used by truck drivers to obtain the cash flow needed to purchase fuel and to cover other expenses. The process is also called freight factoring, and it allows a trucking company to sale account receivables at a discount. The trucking company sells unpaid invoices to the factoring company to receive cash that can be used for almost anything. Once the invoices are paid in full, the trucking company will pay a factoring fee. The process is normally only completed when the trucking company has clients who have good creditworthiness. There are a variety of transportation factoring methods used. There are benefits gained by the trucking company when they decide to utilize transportation factoring.
Types of Transportation Factoring Methods
Most factoring companies will normally utilize a few methods of trucking factoring to help trucking companies. The method is to be used can normally be determined by the type of clients that trucks company does business with. There are some clients who may not pay their invoices on time; therefore, it influences the methods that a factoring company will use. The two methods are:
- Use of Recourse Factoring
- Non-recourse factoring is used
With the use of the recourse factoring method, the trucking company will assume the liability of clients who do not pay their invoices. Most companies with sufficient funding and cover the unpaid debts of the clients will tend to use the recourse factoring method. The trucking company will also pay lower factoring fee that is lower than fees associated with not assuming liability. The non-recourse factoring is normally used by smaller trucking companies who may find it difficult to cover the liability or expense of the unpaid invoices by clients. With the use of the non-recourse factoring, the factoring company takes on the liability; however, the trucking company will pay higher factoring fees to offset bad expense taken by the factoring company. Both methods will provide benefits to the trucking company.
Benefits of Utilizing Transportation Factoring
There will be some factoring companies who will be able to provide much-needed cash flow in 24 hours. The trucking will company will get the money needed immediately. There will be some companies who are willing to work with trucking companies who do not have great credit. It ensures the process can be opened to almost any company. The use of a factoring company will help a trucking company reduce the cost associated with processing invoices. The process normally allows easy approval to ensure trucking companies receive the cash flow to help them mitigate daily expenses.
Know The Correct Company For A Long Business Relationship
A factoring company must be a company a person is willing to form a long-term relationship when the trucking company understands they will be utilizing their services often. A good factoring company will provide reasonable rates for their services. The companies will make it as easy as possible to complete transactions. For example, a company may allow a trucking company to utilize software that makes managing invoices or accounting for invoices much easier. The collection practices will not alienate the trucking company’s clients.