A freight factoring company improves cash flow for truckers by paying an advance on outstanding customer invoices. As soon as a load is delivered, the factor company will front up to 90% of the invoice then seek payment from the customer. Once the customer has paid, the trucker receives the rest of the invoice total minus 1% to 5% as a factoring fee. Factoring allows faster payment than traditional invoicing, which can take weeks or months to be paid by the customer.
Recourse vs non-recourse freight factoring
There are two ways of getting factored: recourse and non-recourse. The difference lies in the sharing of risk and financial liability should the customer not pay the invoice. Of course, the more risk the factor company takes on, the higher the freight factoring rates.
With recourse factoring, which is the most popular, the trucker must buy back any invoices that the factor company is unable to collect from the customer within a set period of time, typically 90 days. This means the trucker takes on all the risk, but in turn pays a lower factoring fee.
With non-recourse factoring, the factor company assumes some risk by covering some or all of an invoice that a customer does not pay; however, to qualify for non-recourse factoring, there are extra stipulations. The customer whose invoice is being factored must qualify as a debtor with a good credit rating, and the trucker will pay more in factoring fees to absolve some of the risk. In some cases, non-recourse factoring only covers the invoice if the customer declares bankruptcy, so be sure to read the fine print.
How Freight Factoring Helps Newly Independent Owner-Operators
Freight factoring for independent owner-operators can allow truckers to hit the ground running. Instead of waiting weeks or months for payment from your first customer, you get immediate cash flow to dedicate to other business expenses.
If you combine this advance payment plan with a digital freight matching service, you can double this effect by getting loads more quickly. Digital freight matching finds available loads on your route and at your price. More jobs and more cash in a shorter amount of time—it’s an ideal pairing for those who recently obtained their own authority.