How to Choose the Best Truck Factoring Company

Written By Alla Levin
May 13, 2021
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How to Choose the Best Truck Factoring Company

When beginning a business, you need to have the constant cash flow to pay off vendors and clients. In addition, to keep a good reputation in your sector, remaining in good standing with your long-term customers, new business partners, and the general public is essential to keeping your business afloat. So let’s see why you should consider asking for help if you are having trouble staying on top of your finances.

Steps of how to choose the best truck factoring company

Before you can choose the best truck factoring company for your needs, you should know the purpose of the factoring company, how it works, different types of factoring, how much it costs, what to look for in businesses, and how to find the right one for your specific company.

What is a truck factoring company?

Truck factoring can seem complicated to those new in the industry, but it really isn’t. This factoring helps trucking companies stay afloat and continue getting new clients in this competitive business with a simple concept.

Truck factoring companies specialize in financing invoices to provide a constant and steady stream of cash to companies who normally have to wait for invoices to be processed. Truck factoring companies are essential to startups, small businesses, and corporations alike since they provide the income required to keep clients and pay vendors on time.

Companies will usually need funds sooner than the typical waiting period of the invoice to pay the ongoing business expenses that come with daily life. The typical waiting period is between 30 and 60 days – during this time, businesses will have to pay vendors, pay employees, pay suppliers, and make money to obtain new clients.

Truck factoring helps by providing two services subsequently – credit reviews and receivables. Receivables are the assets on a bank statement that need to be paid to obtain capital. The factoring company reviews your clients’ credit to see if they need to pay upon the delivery of products or services, before delivery, or in the 30 to 60-day waiting period post-delivery.

The credit reviews allow you to offer credit only to customers and clients you know will pay during that period. By figuring out reliable options for clients, you can ensure you get paid on time and don’t have to try using debt collectors.

How does truck factoring work?how to choose the best truck factoring company

Luckily for new business owners and entrepreneurs, truck factoring has a simple setup and method that is time-tested. First, truck factoring companies finance your receivables by purchasing them, usually covering between 70 and 90 percent of the invoice at the time of purchase. This cash advance is then deposited into your bank account, so you can receive immediate funds – although at a lesser price.

The remaining percentage that the truck factoring company keeps is called the factor’s fee. This remaining money is deposited into your account after the client pays the total amount that is due. If your client does not pay, you will not receive the money into your account.

Recourse vs. non-recourse factoring

There Are two types of truck factoring used with businesses today – recourse vs. non-recourse factoring. Each type has its own distinctive pros and cons – let’s see which is best for your business needs.

The main difference between these two types of truck factoring is how the company handles a non-payment by the client. For example, if a client does not pay the money back on a receivable, the tuck factoring company needs to find a way to obtain the money.

In a recourse transaction, you have to repay the factor. This is usually the case with bigger businesses that have already established a good reputation and have money to spare in the bank. However, your client is bankrupt or has closed in most cases, meaning it will not pay back any unsettled debts.

For non-recourse truck factoring, your truck factoring company will pay the invoice. Although this is a good short-term solution for businesses with little money to spare or capital at the moment, it can lead to extremely high interest rates when it is finally time to repay the debt.

How much does truck factoring cost?

The number of your invoices usually determines truck factoring rates, the total number of invoices at any current time, your sector or industry (ex: truck and automotive), and the creditworthiness/score of your clients at the time. Factoring is very competitive, and most companies will battle for clients.

In most cases, truck factoring companies offer a monthly rate of between 1.5% and 3.5% depending on the sector and the length of the contract period.

What to look for in a truck factoring company?

Customers need to know what characteristics to look for in a truck factoring company to see which is best for their needs. After you know the purpose of a factoring company and the different types, you can evaluate the extensive options to see what to look for in truck factoring businesses.

Type of factoringhow to choose the best truck factoring company

Now that you know the difference between recourse and non-recourse factoring, you need to know which is best for your business. If you are a new company without extra money to spare, non-recourse factoring could be the best way to get started. However, if you have already established yourself in the industry and have money in the bank, choosing recourse factoring can lower interest rates and lower payments. Ensure the invoice factoring company you choose offers both types of factoring if you want to switch from one method to another as your company progresses.

What industries do they work with?

If you need a truck factoring company, you don’t want to choose an invoice factoring business that doesn’t work with the transportation or automotive industry as clients. Most factoring companies have specific sectors they thrive in, whether it is tourism or oilfield services.

Finding a factoring company specializing in trucking is essential to getting the best deals and establishing the most secure working relationship. You can determine if a factoring company is familiar with your sector by asking questions about their past clients and their business model.

Make sure you pay attention to each answer to see if they are knowledgeable about trucking. Most factoring companies will provide a trial period or proposal stage to see if you will be a good fit.

How long have they been around?

If you are researching truck factoring companies and find one that looks promising but has no reviews or past clients, it runs away. Instead, choose a truck factoring company with multiple reviews and past clients who can vouch for their work and results.

The best factoring companies have been around for at least 5-10 years, showing their experience of dealing with multiple clients in various sectors. Since they have long-term experience, they have worked with economic hardships, financial difficulties, difficult customers, pandemics, and other unforeseen circumstances and come out on top.

Do you offer advance rates?

Advance rates usually range from 70 to 90%, depending on your company, reputation, and industry (trucking). The most common advance rate is between 80 and 85% for most businesses, while companies in certain industries with high risk will drop down to between 70 and 75%.

What are your truck factoring rates?

A truck factoring company should be able to provide you with a quotation for your business and industry, no questions asked. As long as you provide the company with basic information and business statistics, they should be able to provide you with a rate between 1 and 3.5% per one month.

Keep an eye out for some truck factoring companies that are vague and nondescript about their pricing structure. If it is difficult to calculate the cost of the services per month, be aware of any hidden fees and costs added to the final bill.

How quickly can you create my account?

If you are in tight need of cash and have to pay vendors and clients as soon as possible, the speed of establishing your account is paramount. Most factoring companies can set up a business account for your company in 3-5 business days, ensuring you can have your outstanding bills paid within the week.

How is your truck factoring company funded?reputation of your business

The method by which your truck factoring is funded is crucial for the longevity and reputation of your business. Factors that are funded poorly or inconsistently will only harm the reputation and the consistency of your business. If you choose one of these businesses, your invoices may all of a sudden stop being funded, leading to untrusting and sporadic clientele.

Conclusion

Finding the best truck factoring company for your business is paramount to having a long-lasting and successful business. Therefore, you need to know the basics of truck factoring before searching online or in person for the best company to fit your needs.

After you know the basics of truck factoring, the different types, the importance of this financial method, and the price of truck factoring, you can begin researching various companies by keeping in mind certain questions to ask the business.

Narrowing down the long list of truck factoring companies can seem time-consuming and confusing – but it shouldn’t be. With a list of around seven questions, you can weed out the untrustworthy and unreliable businesses, finding just the top few consistent, reliable, and well-regarded in the business.

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