If you’re interested in learning more about freight factoring, let DAT be your source! Let’s break down everything you need to know in this introductory guide to freight factoring. By the end, you’ll be better positioned to determine which – if any – factoring solutions make the most sense for your business.
What is freight factoring?
Load factoring – sometimes referred to as freight factoring, freight invoice factoring, trucking factoring, or transportation factoring – can be a boon to a carrier or owner-operator’s business. Factoring allows carriers to:
- Expedite payments for invoices and account receivable resulting in fast and reliable cashflow for your business.
- Eliminate cash flow uncertainty, smooth out extreme ends of the business cycle, and avoid taking on new debt.
- Pass off billing, invoice collection, and processing to a dedicated support team.
In many cases, it can take invoices weeks, if not months, to process. With freight factoring, you get paid within 24 hours of submitting your invoice. This makes it easier to regulate your finances, as well as focus on the most important part of your business — getting on the road and hauling loads.
What does the factoring process look like?
Against a backdrop of persistent economic uncertainty and supply chain volatility, it’s easy to see why freight factoring is becoming an increasingly popular tactic for carriers seeking cash flow certainty. The best factoring companies for truckers provide carriers with immediate financial relief and round-the-clock back-office support. Reputable freight factoring companies, like Outgo, a DAT product, specialize in fast funding in addition to efficiently collecting, handling, and processing invoices.
Carriers not only avoid the stress of waiting on load payments but also save valuable time by passing off invoice tasks to experienced freight factoring providers. When you let services like Outgo, a DAT product, handle your back-office work, you free up more time to focus on running your business and staying on the road.
The two most common types of factoring solutions are recourse and non-recourse factoring, which we’ll explore in more detail below. For now, one of the best parts about non-recourse factoring you should know is that once you sell your invoice at a slight discount to the factoring company, with non-recourse factoring, you’re no longer responsible for the customer’s payment.
From a dollars and cents standpoint, you can see why the choice to factor is a best practice for a majority of carriers. Just think: would you rather receive a guaranteed payment within 24 hours or hold out a further two to three months for that extra 2% to 3% you’d save on fees? Not to mention the time spent keeping track of outstanding invoices and depositing payment in your account. In most cases, by saving time on back-office duties, fleets make up the difference in no time, especially with DAT’s Outgo handling all invoice-related matters.
What are the differences between recourse and non-recourse freight factoring?
There are two main types of factoring: recourse and non-recourse factoring – before you rush into any decision, it’s important to understand the key differences between the two.
Recourse freight factoring: Recourse factoring services typically charge a lower percentage of the total load payment. This may seem tempting on the surface – after all, a lower cut for factoring companies means recourse factoring theoretically puts more money in your pocket.
But it’s not for everyone.
With recourse factoring, you’re on the hook if the factoring company fails to collect the full invoice payment from your customer. In the event that a factoring company is unable to receive proper payment, recourse factoring requires that you, the carrier, must buy back the invoice. This can prove problematic for carriers who aren’t prepared to take on this liability and those looking to keep their cash flow consistent and regulated. As a result, carriers opting to use recourse factoring for their loads are often larger operations who have the financial stability to accept losses from less credit worthy customers who do not pay on invoices.
Non-recourse freight factoring: Now that you know recourse factoring, you’ll appreciate the appeal of transportation factoring companies that offer non-recourse factoring services. The most important distinction is that non-recourse freight factoring removes the carrier’s liability in the event of customer non-payment. With non-recourse factoring, you don’t have to repay the load invoice if your factoring company fails to receive its due invoice payment from your customer.
So, why wouldn’t every carrier that decides to factor load invoices go the non-recourse route? Well, because non-recourse factoring also comes with a slight caveat of its own. Compared to recourse factoring, non-recourse factoring companies evaluate brokers’ credit scores and ability to repay the invoice in a reasonable amount of time. In exchange for taking on the majority of the collection risk, non-recourse factoring companies usually take a slightly bigger cut of the total load payment as their fee.
Some carriers prefer to take their chances and give up a slightly smaller percentage of the pie. But many carriers and owner operators are happy to sacrifice a little bit more off the top if it means guaranteed invoice payments.
Bottom line? Determining the most suitable type of factoring solution for your fleet will ultimately boil down to your business’ specific operational needs.
What are the benefits of factoring?
If you’re a carrier or owner-operator and ever find yourself waiting weeks, if not months, to get paid for your hauling services, you’ve probably witnessed the very real business costs of slow invoicing first-hand. Freight factoring isn’t just about ensuring timely payments — it’s about fortifying your customer relationships and establishing yourself as a reliable business partner. It also helps your credit score, demonstrates your trustworthiness to brokers and shippers, and helps you find financial peace of mind for your trucking business.
Take advantage of Outgo’s factoring services with DAT
Carriers can tap into DAT’s powerful freight network – straight from the DAT One mobile app – to capitalize on Outgo’s transparent pricing and customizable invoice factoring solutions. By taking advantage of Outgo’s trusted freight solutions, carriers can say goodbye to the stress surrounding cash flow uncertainty.
DAT earned its reputation by listening to our customers. That’s how we’ve built the most robust on-demand super database in the industry. So when our members came to us looking for factoring solutions that could help them operate more efficiently and effectively, DAT set out to provide the right solution — Outgo, now part of the DAT family.
By joining forces, DAT members can access business-critical factoring services directly through their DAT load board subscription. Wherever you are — whenever you’re on the go — you can seamlessly tap into factoring solutions right from the DAT One mobile app.
With more than 644,500 new loads posted each business day, DAT has built the most comprehensive freight network in the industry. With full visibility into factorable loads, carriers can also be approved for advanced funding on factorable loads. DAT members can easily identify any new load that is factorable — every new load posted on DAT contains a dollar sign ($) if it is eligible for factoring or advance funding.
As the leading end-to-end freight marketplace, DAT One has emerged as the premier hub that meets all carriers’ freight needs – including factoring. By simply logging into DAT’s intuitive interface, carriers can smoothen out the business cycle and stay a step of the competition.
In addition to factoring services, DAT One also features comprehensive broker checks so you can effectively qualify new partners in advance and build your business with confidence. With our joint offering, you can leverage DAT’s advanced market insights, win lucrative new loads on DAT’s load board, and tap into Outgo’s factoring solutions and back-office support.
Start factoring today!
Sick of waiting to get paid for the work you already completed? Freight factoring with DAT’s Outgo helps you get the value of your invoices fast so you can focus on the road ahead. Try it for yourself today!
