Freight factoring is a great way to save transportation companies time, money, and energy, but going about invoice factoring in the wrong way can actually cost you time, money, and energy.
Keep reading to learn the top five costly mistakes to avoid when it comes to freight invoice factoring.
Not understanding the benefits of factoring.
What is freight factoring, and what are the benefits? Freight factoring gives trucking companies peace of mind when their invoices are unpaid. It allows them to continue running their business smoothly despite customers not being diligent on their end of the bargain.
Essentially, the freight factoring company sends companies an advance equivalent to approximately 85% of the unpaid invoice. The factor then tries their best to reach out to the customer to get the invoice paid ASAP.
Many transportation businesses turn to freight factoring as a means of keeping a steady flow of cash—even when customers or clients are paying their invoices promptly. Factoring ensures the invoice is partially paid during the waiting period, while also handing off the responsibility of keeping track of payments to someone else. This gives you the time you need to get back to your business.
Once the client pays the invoice, the freight factoring company returns the rest of the unpaid invoice and takes a small portion as part of their fee. Because of the efficiency of this process, you will not be required to check-in, allowing you to focus on finding new clients and increasing cash flow.
Choosing QuickPay over factoring.
QuickPay is another method of getting paid more quickly offered by freight brokers. There are a few critical differences between QuickPay and invoice factoring, but the main one to be aware of is that QuickPay is more suitable for companies that do not need a quick influx of cash. If that describes your business, factoring is likely the best option for you. Choosing QuickPay over factoring can leave you without a necessary influx of cash when you need it most.
Choosing the wrong kind of factoring.
The two main types of factoring are recourse and non-recourse factoring. The critical difference between them is the amount of risk you’re willing to take and how quickly your clients are likely to pay.
With non-recourse factoring, the factoring company takes on the risk and protects you in the case that your client fails to pay due to bankruptcy. With recourse factoring, you will not be provided that protection. For this reason, recourse factoring fees tend to be less than in a non-recourse contract.
Deciding between the two will depend on how confident you are that your clients are not likely to go bankrupt (or not pay for any other reason) and how much financial risk you can take.
Choosing the wrong factoring company.
If you choose the wrong freight factoring, you could end up losing money in an attempt to save it. An excellent way to avoid getting wrapped up with a bad factoring company is to contact Top 5 Factoring to find your business’s best trucking factoring company.
Not pursuing factoring when it could benefit your business.
Perhaps the biggest mistake you could make is not pursuing factoring when your transportation business could genuinely benefit from it. Don’t miss out on a great opportunity to help your business and make your life easier!
Let us help you find the best factoring company for your freight business!
If you want to give your trucking company a boost, get started with freight factoring today! Head over to our ratings so you can see the best freight factoring companies for trucking businesses you should consider signing a contract with. If you have further questions about freight factoring rates or the best freight factoring company for you, contact us today, and we’ll assist you!