Did you know that the average broker can take 20-30+ days to pay an invoice for a completed load? That means for the trucking company can wait sometimes over a month to get paid. Is there a way around that?
That's where a factoring company comes in.
A factoring company in logistics is a financial institution that provides a specialized form of financing known as freight factoring or transportation factoring. Here's how it typically works:
Invoice Advancement: When a trucking company delivers a load for a client, it issues an invoice for the services rendered. Instead of waiting for the client to pay the invoice, which could take weeks or even months, the trucking company sells the invoice to a factoring company at a discounted rate.
Immediate Cash Flow: In return, the factoring company provides immediate cash flow to the trucking company, typically covering a significant portion (often around 80% to 90%) of the invoice value upfront.
Collection: The factoring company then assumes responsibility for collecting payment from the client. Once the client pays the invoice in full, the factoring company deducts its fees and any applicable discount, then remits the remaining balance to the trucking company.
Risk Management: Factoring companies also typically assume the risk of non-payment by the client, which can be particularly beneficial for smaller trucking companies or owner-operators who may not have the resources to absorb losses from unpaid invoices.
Additional Services: Some factoring companies may offer additional services, such as credit checks on potential clients to assess their creditworthiness and reduce the risk of non-payment.
Overall, factoring companies in logistics provide a valuable service by improving cash flow for trucking companies and other businesses in the transportation industry, enabling them to cover expenses such as fuel, maintenance, and driver salaries more effectively.
Are you a carrier that still hasn't signed up for a factoring company? What are you waiting for! Fill out our contact form and we can help you get set up right away.
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