Dealing with a factor can become a little confusing if you don’t understand the common freight factoring terms used in the industry. Before you know it, you could find yourself in an agreement you weren’t expecting with guidelines and restrictions you aren’t ready for.
We understand how some owners can get lost in the terminology from time to time. That’s why we wanted to provide a list of common freight factoring terms you should know before speaking with any factors. After all, there’s nothing wrong with knowing what you’re getting yourself into before you get into it.
Let’s take a look at the 12 freight factoring terms you need to know!
Recourse Transaction
Type of freight factoring that could result in chargebacks if the factor doesn’t collect payment from the client. If payment isn’t collected, the invoice will be returned to the trucking company.
Non-Recourse Transaction
Type of freight factoring where the factor assumes responsibility for the invoice, whether a collection is received or not. This will give the trucking company much less risk to deal with.
Bill of Lading
Commonly referred to as BOL, this document displays what’s being shipped, the cost of the shipment, the weight, and confirmation of delivery. This is a common part of every trucking company’s day, but also something your factor will want.
Concentration
This represents the percentage of an invoice that the factor will fund for a single client of yours, instead of having one percentage for all of your clients.
Working Capital
Operating liquidity available to a business at any given time, you can calculate this by subtracting the current liabilities from the current assets of a company.
Advance Rate
The percentage you’ll receive up-front from the factor on an unpaid invoice. The typical freight factoring company will give anywhere from a 75-90% advance.
Factoring Fee
The amount of money a factor will charge the trucking company once payment is collected from the client. This amount will generally be subtracted from the final amount being paid to the trucking company upon collection (the 10-25% not part of the advance).
Aging Report
Most freight factoring companies will provide an aging report for the trucking company to view. This will contain a list of any invoices the factor is in control of that haven’t been paid by the client yet. This can be incredibly helpful fo you to keep an eye on the process and prepare for any potential chargebacks.
Fuel Card
Many factoring companies provide a fuel card to trucking companies that agree to their factoring services. The fuel card can help you save a lot of money in fuel while simplifying the process of buying fuel for your truck.
Spot Factoring
Type of factoring that allows a trucking company to factor a single invoice, no long-term agreement needed.
If you’re looking at getting involved with freight factoring, we hope you understand the huge benefits that factoring can provide for your business. Of course, you’ll want to ensure you choose the service that works best for you and that will involve knowing the freight factoring terms that are commonly thrown around.
The terms listed above will give you an excellent rundown of what to expect, but feel free to contact us if you have any further questions about the process. You can also visit our website to view the freight factoring companies we rate the highest.
References
Apex Capital Corp. “Trucking Terms Glossary: Apex Capital Corp.” Apex Capital | Freight Factoring for Trucking Companies, www.apexcapitalcorp.com/resources/trucking-terms-glossary/.