Invoice factoring is a type of accounts receivable financing that can help small businesses avoid wait times of up to 90-plus days for customer payments. And while it’s ideal for countless types of small businesses across many industry sectors, it’s particularly popular for freight and trucking companies. Nearly 12 million trucks, rail cars, locomotives, and vessels move goods over the transportation network, and freight factoring services can help an owner-operator or freight broker’s day-to-day business operations in more ways than one. But before you choose a freight factoring company, it’s important to be aware of some common mistakes. Don’t let these mistakes affect your freight factoring decisions.
Not choosing the right type of factoring.
You may not be aware that there are two main different types of factoring: recourse and non-recourse factoring. The key difference between recourse and non-recourse is the amount of risk you’re willing to take on and how likely your clients are to pay.
In a non-recourse agreement, the factoring company takes on the risk and offers credit protection to you when your client fails to pay because they filed for bankruptcy. If you select non-recourse, you’ll have that added peace of mind if one of your clients goes out of business.
Recourse factoring, on the other hand, still provides the same factoring services but does not provide the protection to you in the event that a client goes bankrupt. That means, you’d still be financially and legally responsible for paying the amount back to the factoring company that was advanced to you. For this reason, recourse factoring fees tend to be less than in a non-recourse contract.
The decision between recourse and non-recourse comes down to your personal level of risk and trust that you have that your clients are going to pay on time.
Not choosing the right factoring company.
Choosing the wrong freight factoring services could cause more problems than it solves. According to the Federal Motor Carrier Safety Administration, approximately 5.9 million commercial motor vehicle drivers operate in the United States, and if the company you choose is inefficient or charges too much, you could just be digging yourself into a deeper hole. Make sure to consider all invoice funding companies, and ensure reputability in as many ways as possible. Getting a referral from another company or owner operator is another good way to find the right factoring company.
Some questions to ask:
- How long has the company been in business?
- Do they offer recourse and non-recourse contracts?
- Do I need to factor all of my invoices or can I select which ones I submit?
- Are there monthly minimums?
- Can I go month-to-month or do I have to sign up for long-term agreements right away?
If invoice factoring sounds like the right solution for your business, contact Triumph Business Capital today to speak to one of our representatives about our freight invoice factoring services.