Factoring can take the risk out of getting paid, but it’s not a one-size-fits-all solution.
Every carrier and every load is unique – you shouldn't have to sell all of your invoices or sign a contract promising to factor a certain amount of business in order to take advantage of factoring.
Whether you want to smooth out the ups and downs of your cash flow or you need to insulate yourself from a slow-paying shipper or broker, it’s important to choose a factoring strategy that makes sense for your specific operation.
Recourse and Non-Recourse Factoring
Advance Business Capital, DAT's exclusive factoring partner, provides two types of factoring: recourse and non-recourse.
In non-recourse factoring, the factor assumes all responsibility for collecting on the invoice. Because the factor is taking on the risk of non-payment, it’s going to be more selective and charge a higher percentage of the invoice you’re selling compared to recourse factoring. However, it might be worth it if you need cash quickly or you have a big customer that likes to pay on its own terms instead of yours.
In recourse factoring, the factoring company can sell the invoice back to you at face value if the debt goes unpaid. Because you share the risk, recourse factoring is less expensive than non-recourse factoring. The factor also tends to provide credit-approval to a larger percentage of your customers.
Which is Best?
It depends on the size of your operation.
Typically, small carriers and owner-operators like non-recourse factoring because it provides fast access to cash for work they’ve just completed. They may not have deep pockets, but they don’t need them when they have receivables to sell.
Larger carriers use recourse factoring as part of a broader approach to cash-flow management, and an alternative way to finance growth. They can handle the occasional unpaid invoice, and, with steady income, they can focus on filling trucks instead of chasing payments.
Regardless of your fleet size, it’s up to you which loads to factor or whether to factor at all. The important thing to remember is that whenever you see a green checkmark from ABC on a DAT load board, we’ve already vetted the shipper or broker from a creditworthiness standpoint. You can take that load knowing you can sell the invoice and put that money to work in a way that’s right for your business.
Categories: Best Practices and Benchmarks