Freight factoring (transportation factoring) offers trucking companies the money and resources to manage cash flow effectively, fund new loads, and grow their fleet. Instead of waiting for past dues, factoring allows these freight companies to spend more time and resources hauling new loads. However, many individuals sign up for freight factoring services without considering all of its aspects. Doing so may result in these six mistakes, which one easily could avoid.
Not reading the fine print
Every factoring service provides estimated costs to businesses. For example, the service may issue a true cost, which includes a 2% factoring fee. However, businesses that overlook the fine print might incur additional fees as high as 10% if they are not careful. The ideal way to avoid this is to seek freight factoring companies that are reputable and transparent about their fees and every detail. One should also read all the terms and conditions to understand their agreement. While the factoring fee may vary, it usually falls between 1% and 3%. Moreover, advance rates may range from 80% to 95% of an invoice’s value.
Lack of research
Another common mistake businesses make is poor research when looking for factoring services. Not all freight companies are the same; each may specialize in working with specific industries. Therefore, one should ensure the freight factoring service they pick has sufficient experience in working with issues faced by trucking companies. Freight factoring companies with a good reputation usually offer a seamless experience when securing cash. One could also look for the technological resources a freight factoring company offers to help one better manage their funding and overall finances.
Not accounting for after-sale support services
Many freight factoring companies may market their brand very well. However, after an individual signs up for it, the level of service might not be up to the mark. Therefore, one must ensure they ask the company questions to determine their level of support in the event of a setback. The trucking business should also enquire whether one can pick the invoices that need to be factored. Calling the freight factoring company’s customer support and speaking to their agents could be one of the ways to determine if they offer reliable after-sales support and services.
One of the most common errors one could make is not reading reviews from other trucking businesses. Most freight factoring companies have an online presence, which means past clients may have reviewed services. To understand the freight company better, one can read what other trucking companies say about the factoring company, such as their service and support. Doing so could help determine if the service is suitable for the job. However, if one notices multiple businesses calling out a freight factoring company for one or more than one problem in particular, one ought to reconsider signing up.
Going with the wrong type of factoring
Most businesses are unaware of the types of factoring available, which could result in them making the wrong choice. There are two types of factoring – non-recourse and recourse factoring. In a non-recourse agreement, the factoring company is liable for the risk and offers credit protection to the business when the client fails to pay if they file for bankruptcy. So, one could have that added peace of mind even if a client goes out of business. On the contrary, resource factoring offers the same service without protection to the business if a client goes bankrupt. Therefore, a business would still be financially and legally responsible for paying the amount back to the factoring company that was given in advance. This also comes with a price difference, with fees for recourse factoring being lower than a non-recourse contract. The final decision depends on one’s level of risk and the trust one has in the clients about payment timelines.
Failing to disclose crucial information
In the business world, it is crucial to maintain transparency to ensure smooth operations. This holds for trucking companies and freight factoring businesses as well. To get quick approval for the desired amount, it is advisable to be honest about the application. Freight factoring companies need to evaluate the business to provide the ideal quote. However, if a business withholds information, it may result in ineligibility for the desired amount. Therefore, it is imperative to maintain transparency in dealings to avoid discrepancies or unfavorable outcomes.