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10 tips to choose the right freight factoring company

Freight factoring allows trucking companies or carriers access to cash flow to be able to run their business better. Carriers can sell an invoice, receive an advance, and then pay a small fee once the payment is cleared by their client. This gives them the resources they need for day-to-day operations, maintenance, fuel, and much more. Opting for freight factoring can help a business greatly, and here are a few tips to get it right.

Shop around
Instead of picking the cheapest factor or one that has the biggest name, choose one that understands the transportation business’ needs. Talk to peers within the industry, dig up contacts with other carriers, ask for referrals, and talk to people who have a working relationship with the factor being considered. Be sure to ask how the factor interacts with its clients. Getting stuck with a strong-arming freight factoring company can be bad for business.

Look at multiple factors and consider how deep each one’s understanding of the business is and how well-equipped they are for emergencies. Further, visit the website and ensure that it has all the pertinent information. Also, call the number listed and verify that it’s a legitimate number and a working one at that. Visit the office if possible to be completely sure.

Consider flexibility
It is common for some freight factoring companies to want a minimum amount or number of invoices each month. Since not all clients are equal, one may want to only factor customers who tend to not pay on time. Factoring only a few customers would significantly reduce the amount paid to the factoring company, but it is a term they need to be on board with. Sometimes, a new client may end up being a slow-payer, or a regular one might have trouble keeping up with payments they usually could make. In such a scenario, having a freight factoring company that functions like a partner and not a vendor and understands these issues can be a boon to business.

Disclose all information
Withholding unfavorable information is a bad idea. Past history of poor finances or bills paid late won’t put a spoke in getting denied approval, as much as withholding this information will. Apart from looking at a business’ ability to repay, its credit rating, and quality of service, freight factoring companies also look at its clients and their creditworthiness. If one’s business has been steady and is solvent, past credit ratings shouldn’t matter.

Consider the factoring company’s ability to grow
As a business grows, so will the cash flow needs, and here’s where choosing a factoring company that can keep pace will make sense. Pick one that can keep up with the growing demands and have the capital to fund the increase in invoices.

Set a transparent fee structure
Ensure that all information about how much money will be received upfront for invoices is clear and unambiguous. A transparent fee structure allows one to understand the money trail and keep track of every penny paid.

Be vigilant
Ensure that one’s company is listed as the carrier on rate confirmations so that one does not fall prey to double brokering. Additionally, during the factoring process, be wary of excessive delays in account setup or irrelevant questions that make one uncomfortable during underwriting. Work only with factors who have a physical office and steer clear of those who only function with a PO box or virtual office.

Consider ease of access
Having accessibility to account details and being able to receive reports and other vital information at all times is essential. One should be able to keep track of one’s account online for convenience and the ability to make quick decisions. If the freight factoring company being considered has a mobile solution for submitting invoices from anywhere and at any time, it should make things fairly seamless and straightforward. Make sure to take the mobile solution for a test run before committing to the company or signing a contract. Also, look for a company with 24/7 monitoring access and an easy-to-access portal so everything from purchase orders to collection notes can be tracked.

Choose non-recourse factoring
There are two types of factoring – recourse and non-recourse. Factoring with recourse means the client will have to buy back an invoice from the factoring company if it is not paid within the number of days agreed upon. Non-recourse factoring, on the other hand, means the factoring company accepts the risk of non-payment of an invoice. Non-recourse agreements do allow that extra insulation from an added expenditure and, by extension, some peace of mind. If possible, find a credible factoring company that fits one’s budget and has the option of a non-recourse factoring.

Pick one that offers fuel cards
Some freight factoring companies offer fuel cards that, when used at truck stops, offer big discounts. Fuel cards work like debit cards, and the driver can use these to pay for repairs apart from fuel.

Read the contract and negotiate terms
Freight factoring agreements will be full of legalese, numbers, and conditions. Go through each one carefully and don’t hesitate to ask for clarity. If the language is ambiguous, request for it to be reworded or, at the very least, explained on paper. Negotiate terms like fees, advance rates, additional services, and even the duration of the contract to make it more favorable. Do not sign the contract if there is even the slightest doubt, or consult a lawyer to review the contract and ensure that everything is in order.

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