Freight factoring eliminates that waiting period and gets cash in your hand fast. Instead of waiting months for your invoices to be paid, factoring allows you to sell your accounts receivable to a factoring company in exchange for cash that’s deposited directly into your account within hours of you submitting your paperwork. After that, it’s up to the factoring company to deal with your customer and make sure they pay the invoice.
This basic framework is true of all factoring, whether it’s recourse or non-recourse. The distinction between the two comes up later when it’s time for the customer to pay the factoring company.
How Does Freight Factoring Work?
Quickly receiving the cash you earned sounds great, but how does the process actually work?
Getting funds through a third party might seem like a complex and intricate situation requiring paperwork and inputs from many different parties, but it’s actually quite straightforward.
While the process may differ slightly in its specifics for each freight factoring company, these are the basic steps:
- Provide the important details: Once you book a load from your customer, the freight factoring process begins. Start by sending the information about the load — including the load, the rate confirmation, and any other relevant details about the shipper — to your freight factoring company through email or fax.
- Wait for a credit check to be completed: The freight factoring company will run a credit check on the shipper and let you know whether or not the party was approved. This check allows the factoring company to determine whether the shipper is likely to pay, or if their credit history indicates that they’re too much of a risk factor.
- Deliver the load: Once the broker is approved — whether they were pre-approved by the factoring company or they are approved following a credit check — you can deliver the load per usual.
- Send key documents: Once you’ve completed the job and unloaded everything, it’s time to send another email or fax to the factoring company with documents related to the load, such as the invoice. Some factoring companies make this process even easier by offering an online portal and mobile app where you can upload the documents directly.
- Receive payment: Within hours of receiving those documents and confirming that the delivery went well, the factoring company will deposit some or all of the value of the invoice into your account (minus the small service fee that every factoring company takes, which is typically a small percentage of the invoice’s full value). Essentially, the factoring company is buying the invoice from you. Once you get your money from the factoring company, you no longer need the invoice. The factoring company now owns it and will take care of getting the payment from your customer.
- Keep moving: That’s it! You’re ready to pick up your next load, armed with the funds you need to keep moving.
