Choosing a Freight Factoring Company

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Freight Factoring Companies

To get the most out of freight factoring, you’ll want to ensure the process aligns with your business goals and work with the right factoring company.

You’ll also need to do your due diligence to find a trusted freight factoring company. If you don’t, you might spend months waiting for advances or lose money due to predatory terms.

When choosing a freight factoring company, find a company that offers great terms and services. Look for a company that:

  • Offers digital options for submitting your freight invoices
  • Has 24/7 customer service
  • Runs credit checks on shippers and brokers
  • Doesn’t withhold payments for smaller loads or significantly reduce the amount of money you’ll receive for delivering smaller loads

Why do I need factoring?

Learn how factoring can help you get the funds you need as soon as you make a delivery — no bank loans, credit checks or credit cards required!

You may not realize it, but freight factoring has been around for decades. It’s a well-established process that has steadily grown in popularity over the years due to global economic factors and the ever-increasing costs associated with hauling freight. Despite the prevalence of well-established, reputable factoring companies, many people continue to wonder about the true value and purpose of factoring.

One of the most common questions that carriers and owner-operators ask is: “Why do I need factoring?” It can be difficult to understand the benefits of factoring for trucking companies if you aren’t familiar with how the factoring process works. After all, factoring companies take a small percentage of your invoice in return for offering you cash. No one wants to lose any part of their invoice. But for many trucking companies, the benefits of factoring far outweigh the minimal cost of losing a small amount of your invoice.

Learn how factoring can help you get the funds you need as soon as you make a delivery — no bank loans, credit checks or credit cards required!

In this piece, you’ll learn all about factoring — how it works, why companies do it, and more — so that you have the information you need to answer the question “Why do I need factoring” for yourself.

Types of factoring for trucking companies: recourse vs. non-recourse

Now that we’ve reviewed the basics of how trucking factoring works, we need to address the difference between the two different types of factoring recourse and non-recourse.

The vast majority of companies, whether they state it or not, only offer recourse factoring. Recourse factoring plays out following the steps laid out above. The only added step is that if your customer doesn’t pay the invoice (or they pay it late), you will be charged and forced to return the amount that the factoring company paid you.

That means with recourse factoring, the factoring company itself does not accept any risk. While you get the funds you are owed for your invoice right away, it isn’t guaranteed that you’ll get to keep those funds until your customer pays the value of the invoice to the factoring company.

For many carriers, this isn’t particularly appealing. That’s why some companies claim to offer non-recourse factoring. With non-recourse factoring, the factoring company accepts the risk associated with the invoice. The fee might be a little higher than with the recourse method, but in return the factoring company guarantees that you’ll be able to keep the payment you received from them whether or not the customer pays the factoring company.

The problem is that most companies that claim to offer non-recourse factoring don’t actually offer real non-recourse factoring. Typically, the only scenario in which they won’t collect an unpaid invoice from you is if the customer files for bankruptcy between the time you submit the invoice and the customer pays it. This happens very rarely, especially when you consider having to confirm the customer is credit approved by factor prior to accepting the load — which ultimately means that most non-recourse options are really the same as recourse.

In reality, there is only one factoring company that offers true non-recourse factoring: OTR Solutions. Unlike other companies that claim to offer non-recourse options, OTR Solutions actually fully accepts the risk associated with your invoices. That means that if your customer doesn’t pay for whatever reason, OTR Solutions will accept the loss without charging back the invoice amount after a period of time. That guarantee can prove transformative for any carrier or owner-operator — particularly those running smaller operations.

Choosing the right type of factoring for you

There’s a lot to consider when deciding whether recourse or non-recourse factoring is the right choice for your trucking company.

In the end, understanding the differences between the two will only get you so far. The most important decision is finding and working with a reputable factoring company.

Whether you choose recourse or non-recourse factoring, start by sitting down with an esteemed company to discuss their terms. If possible, choose a factor that offers both recourse and non-recourse factoring options so you can learn the specifics of each approach and make your decision accordingly. Working with a company that offers both also means it will be easier to switch to the other factoring option at any point if you feel the need to do so.

At DAT, we know that starting the factoring process can be tough. It’s easy to get overwhelmed by the jargon and different options out there. But we also know that factoring can be very beneficial to the trucking companies that embrace it. That’s why we’ve partnered with OTR Solutions to make it easier for our customers to get the cash they need from a reputable factoring company.

With OTR Solutions, you gain access to the only true non-recourse factoring partner on the market today. But of course, non-recourse factoring isn’t for everyone — which is why OTR Solutions offers recourse factoring as well. The company offers both forms of factoring with no hidden fees or small print, giving you increased flexibility in receiving payment.

We’ve incorporated OTR Solutions right into the DAT load boards you know and love so you can benefit from that flexibility. Thanks to our partnership, you’ll be able to identify which loads can be factored using either recourse and non-recourse factoring with OTR Solutions before you even pick them up — just look for the boards with the blue check mark. Learn more about factoring with OTR Solutions here.

How does the factoring process work?

Freight factoring is quick and easy to do. Once a load has been delivered, simply submit the rate confirmation and bill of lading to your partner factoring company.

They will verify a clean delivery with the brokerage and, upon verification, deposit the payments into your account through your fuel card (immediate), wire transfer (less than an hour), or ACH (overnight). In some cases, freight factoring companies offer other unique funding options. For example, OTR Solutions offers a direct to debit funding option called “Bolt,” which allows you to deposit funds into your bank account within seconds. Most factoring companies make invoice processing even easier through an online portal or mobile app that allows you to create the invoice and submit the bill of lading and rate confirmation digitally.

To remain profitable, factoring companies will charge factoring fees, also known as discount rates, between 1-5% of the total freight invoice. Factoring fees vary and are based on the value of your invoice, the creditworthiness of your customer, your sales volume, and whether or not the factoring company uses recourse or nonrecourse factoring.

To better understand the factoring process, let’s walk through an example of freight factoring. Say you’ve just taken on a load for $3,000. Instead of delivering the load and waiting up to 60 days to receive the final load payment from your customer, you decide to enlist the services of a factoring company. The factoring company offers to buy the invoice off of you for $2,940 — charging a 2% factoring fee of $60. So at this point, you have sacrificed 2% of the total load payment to receive a more expedited payment and relieve yourself of any invoice-related processing matters.

In many cases, the factoring company may not pay the full payment amount upfront. Instead, they may choose to pay 85% of the agreed upon payment upfront, which amounts to $2,550 in this example. After your customer completes the invoice with the factoring company, you will receive the remaining $450 balance (the 15% the factoring company held back). However, these kinds of reserves are specific to recourse factoring, and advance rates like this example aren’t usually included in non-recourse programs (like OTR Solutions).

Learn More About Trucking Factoring

At DAT we know that determining if factoring is right for you is a tough decision. There’s a lot of information out there and it’s easy to get overwhelmed by all the considerations, from finding the right factoring company to determining which loads you can factor. That’s why we’ve partnered with the best factoring company in the business, OTR Solutions, to make it easier for our customers to get the cash they need without the hassle.

Thanks to our partnership, you can see exactly which loads you’ll be able to factor with OTR Solutions right from the DAT load board, before you even pick them up! Learn more about factoring with OTR Solutions here.

OTR Solutions

DAT's factoring partner