What is Freight or Transportation Factoring?

Freight factoring, or transportation factoring, is a financial service that will financially benefit the cash flow for the business by cutting out the waiting period for payment. This will allow freight companies to perform business as usual while the freight factoring company waits instead. And by capturing data, it’s easier and faster to get payment and leverage better working capital. This includes more traditional means of freight payment too. Nearly every freight bill company can process invoices accurately and efficiently, but experts and industry officials contend that even more streamlining comes from examining how to enhance working capital while providing carriers timely, predictable payments,”  according to an article in Logistics Management. With more time to focus on higher priorities, owners can turn their attention to finding more hauling contracts and gaining more customers. Taking freight payment data analysis into consideration when deciding on freight factoring will allow for a knowledgeable, more informed decision to accelerate company growth. This will allow for oversight of the advancements freight factoring can have on any business.

Defining Freight Factoring

A more straightforward way to explain what is factoring in the freight trucking industry is picking up the goods from one location, delivering them to the next, and being paid for the service by the shipper or broker. The profit is the amount paid, minus costs for delivery for the cargo; usually, this will be paid an average of 30-90 days after. However, with freight factoring, when selling the invoice for a load that has been hauled, rather than waiting to be paid, cash will be received immediately. Freight factoring services and following up on trends that are transforming the trade will allow for benefits and advancements to be made throughout the company. For some freight companies, predominantly privately owned, this will highly benefit the weekly or monthly budget. Instead of waiting on payment, an invoice can be transferred or “sold” for the job to a third-party company. By buying the invoice for slightly less, it will make up for it by being paid immediately.

transportation factoring

Why Would a Company Choose to Use Freight Factoring?

When deciding whether or not to use freight factoring, try looking at how the business can benefit or hinder the company’s growth. For best transportation factoring, the main goal for most, if not all, interactions is to gain profit at a positive and quick rate and achieve growth throughout the company. For smaller or privately owned businesses, the immediate payment with factoring will benefit weekly or monthly budgets. In other cases, freight factoring can be beneficial if operations are suffering due to any of these reasons:

  • Difficulty achieving overall growth. 
  • Lack of staff or technological capabilities to manage communication and payment collections.
  • An inability to consistently pay vendors on time due to slow-paying customers.
  • Lack of cash flow negatively impacts business growth.
  • Struggling to obtain financing through a bank and risk paying interest rates.
  • Susceptibility to fraud in your trucking business as well as credit risks. 

How Freight Factoring Streamlines Payment Management

Freight factoring can be very beneficial when helping to manage business finances and credit. Getting paid immediately rather than later gives businesses the capital needed to fund both operational and capital expenditures that drive growth. With someone else handling the billing and collecting, the end results will yield increased profits while removing the hassle of an arduous task from back-office personnel. Every year numerous new trucking companies enter the marketplace. Using antiquated avenues to funding —, for example, banking — makes it more challenging to secure financing. 

freight payment management

The main goal for all for-profit companies is just that — to generate as much profit as possible. However, if there are more “payouts” than “pay-ins” on the balance sheet, many companies would turn to bank loans as a solution, which can result in thousands of dollars being spent on interest payments. Freight factoring is a much better alternative; with money in hand, the business can continue as usual. This, in turn, paves the way for more customer acquisitions, which will generate more profits. In other cases, a transportation factoring company can make sure that the broker’s or shipper’s ability to pay will help mitigate credit risks and the greater risk of incurring losses rather than profits. 

The Strong Benefits and Advancements Behind Modern Freight Factoring

The most beneficial impact of freight factoring: same-day pay once the invoice is submitted and processed. This will afford more capital and greater cash flow for the company while enabling staff to focus on making phone calls to collect funds and managing invoices. Trusting freight factoring to foresee the back-office tasks will also heighten the probability of technology advancements. Generating more profits and increasing overall efficiency will help companies to readily embrace options such as cloud-based technologies, artificial intelligence, and machine learning based on big data. Technology advancements can help optimize growth throughout the company or allow for modernization, with one example being customizable digital payments. These advancements provide for more flexibility and processes outside of a physical location, which will be very beneficial as economies continue to slowly emerge from the global pandemic. 

Reap the Rewards of Freight or Transportation Factoring with HaulPay

No matter the size of a company or how much it has grown, there is always room for technology advancements and optimization of processes. Every company strives for the best possible resources to drive company growth and customer acquisition. Freight factoring can provide numerous benefits, such as increased cash flow, overall business growth, and reduced hassle of managing back-office tasks. To experience these benefits and achieve overall business growth, request a demo to see how the HaulPay platform works.