Last Updated on November 2, 2022
The freight and trucking industry heavily depends on prompt invoice payments to cover operating costs. Unfortunately, companies may need to wait weeks or even months for customers to pay, creating a cycle of negative cash flow and mounting debt.
To keep your trucking company competitive and growing, you need cash to pay expenses, maintain equipment, and run more lanes – this is where freight invoice factoring comes in. In this article, we discuss how factoring for trucking companies works, its benefits, and how it compares to other commercial trucking financing options.
Read on to learn how altLINE can help your business with freight factoring!
What Is Freight Factoring?
Factoring in the trucking industry (also referred to as freight factoring) is when you sell unpaid invoices to a third-party company for a cash advance. Trucking invoice factoring is most commonly used to improve cash flow, pay down debt, hire more drivers, and pay your employees on time, even when customers take a long time to pay.
Benefits Of Invoice Factoring For Trucking Companies
altLINE is one of the best factoring companies for trucking operators. We provide cash advances to unlock funds, even when your customers have not paid their outstanding invoices yet.
Here are some benefits you can get from freight factoring with altLINE:
Get Your Accounts Receivables Paid In Days, Not Months
The best factoring companies generally approve your application within 1 or 2 days. This means you can receive up to 95% of your invoice value almost immediately instead of waiting 30, 60, or even 90 days for customers to pay.
Access Capital To Grow While Maintaining Equity
As an owner operator, you sometimes have to sacrifice business equity to capitalize on growth opportunities, but with invoice factoring, you do not have to give up a part of your business to access funding. Instead, factoring companies for trucking operators and fleet owners provide cash advances to help you hire more drivers, upgrade your equipment, and pay down debts, without sacrificing equity.
Take The Guesswork Out Of Payments
Late invoice payments and delinquent customers make planning your finances and paying your drivers difficult. Our invoice factoring services provide cash when you need it, so you don’t have to plan around unpredictable customer payments.
How Does Trucking Factoring Work?
Factoring invoices through a commercial truck factoring company works by exchanging unpaid invoices for cash. Freight factoring softens the financial blow of late customer payments – instead of waiting on customer payments, you can use truck factoring to get cash whenever you need it to fund operations and business growth.
Here is an overview of how freight factoring works with altLINE:
Submit Your Invoices
altLINE accepts all kinds of unpaid invoices for factoring. However, we usually favor invoices for creditworthy customers and large or medium-sized companies. Additionally, we do not factor invoices for customers who consistently make late payments.
If your invoice turnover time is between 30 and 90 days, your receivables are well-positioned for factoring.
altLINE Advances Up To 95% Of The Invoice Face Value
You can generally expect a factoring advance rate of 95% of the invoice’s face value and a cash advance deposit between 24 and 48 hours after submission to altLINE. The exact timing of your cash advance deposit usually depends on the customer’s receipt and acknowledgment of goods.
altLINE Helps Collect Payment For Your Outstanding Invoices
We provide a secure deposit box to contain customer payments and report collection progress through an online customer portal. If issues arise, our team can also communicate with customers to resolve them professionally, ensuring your business relationships are well-maintained.
altLINE Pays Out The Remaining Unpaid Invoice
After we collect your invoice payments, we deduct our factoring fee (typically 1-5% of your invoice) before sending the rest of the invoice value to your company.
Uses For Your Factoring Cash Advance
Receiving cash advances from truck factoring companies means you do not have to wait on customer payments to fund your business. With truck factoring, you can avoid long payment cycles, unlock growth capital, and accelerate business development.
Here are some ways you can use you cash advances from altLINE’s factoring services:
Pay Your Drivers On Time
Paying truckers on time is essential to running a successful freight business. Unfortunately, late customer payments cause payroll delays that reduce productivity and employee satisfaction.
Factoring trucking loads improves your cash flow, ensuring you meet payroll obligations on time – even when your invoices are not yet paid.
Take On New Customers
You don’t have to wait for customer payments to clear before spending money on fuel, equipment maintenance, and other transportation necessities. Factoring improves cash flow for your trucking company and lets you accept new orders to grow your business.
Pay Operating Expenses
Truck maintenance and insurance, among other fees, are essential operating expenses. Freight factoring for trucking companies lets you access working capital sooner rather than later, so you don’t have to dip into your savings, sacrifice equity, or sell assets to pay those expenses.
Run More Lanes
You should not have to wait for long invoice payment terms to hire more drivers and move more freight. Instead, invoice factoring for trucking enables you to turn unpaid invoices into cash, giving you the freedom and flexibility to grow your team.
Because freight factoring is not a loan, you do not have to worry about going into debt to pay expenses. Instead, you can focus on improving your credit by accessing working capital from factoring to pay down other debts and make on time payments.
Related: Can You Factor With Bad Credit?
Freight And Trucking Businesses We Fund And Finance
altLINE is a factoring company for truckers that serves various businesses in the freight and transportation sector. Here are some example businesses that can benefit from invoice factoring:
- General freight carriers and owner operators
- Dump truck operators
- Logistics companies
- Cold chain transportation companies
- Courier services
- Vehicle towing services
- Flatbed trucking
- Refrigerated freight
Factoring Your Trucking Invoices vs Other Funding Options
In addition to invoice factoring, you have multiple options to fund your trucking company. Here are three alternative trucking company financing methods and how they compare to invoice factoring:
Trucking Factoring vs Bank Line Of Credit
A bank line of credit is often the first choice of businesses looking for a financing solution. While many trucking companies can qualify for a line of credit, they may not get enough funds to fuel growth.
Banks usually look at your fixed assets before approving your line of credit. A bank line of credit can be advantageous for trucking companies because they often have lots of fixed assets, allowing them to get a higher lending limit. However, you may have a tougher time qualifying if you’re a new company without many assets.
Invoice factoring is typically better for new companies because factors look at customers for funding eligibility instead of your fixed assets. If you work with an established and creditworthy customer base, factoring companies will provide the working capital that banks cannot.
Trucking Factoring vs ACH/MCA Loans
ACH (automated clearing house) and MCA (merchant cash advance) loans are popular because they only take one or two days to provide you with funds. Additionally, you only need business bank statements to qualify.
However, the ease and speed of ACH and MCA loans are offset by their high interest and lender fees, which can reach up to 60% of your original loan. ACH and MCA lenders also offer loan stacking options that may lead to mountains of debt.
Invoice factoring is typically safer because your customers will eventually pay their bills, thus repaying your cash advance. This means you can focus on growing your business without stressing over debt repayments.
Trucking Factoring vs Quick Pay Discounts
Offering a discount for early payments is a common way to accelerate your cash flow when necessary. However, the major flaw in this method is that it relies heavily on the customer. If customers prioritize having a healthy cash flow over cost savings, they’ll ignore your offer and may decide to pay much later, leaving you low on cash and unable to fuel growth.
Invoice factoring eliminates any uncertainties because if an invoice is approved, you’re guaranteed to get a cash advance.
Typical Factoring Rates And Fees
How much do factoring services cost for trucking companies? We determine truck factoring rates based on how much you plan to factor and how long customers take to pay. Generally, we offer lower factoring rates when you factor more amounts and get customers to pay faster. We also consider other things like your company’s age and overall customer credit profile.
Factoring fees for trucking operators fall into two types:
- Initial fee: This fee covers invoice processing for a set initial period of time (typically the first 30 days) and costs 0.90-3.50% of your invoice value.
- Incremental fees: These periodic fees kick in after the initial fee period to cover our additional expenses and costs 0.25-1.50% of your invoice value per charge.
Requirements To Apply For Trucking Factoring
You must apply for factoring services to be eligible for a cash advance. Here are the documents you need:
List Of Existing And Potential Customers
We require a list of all your existing and potential customers as part of the application. altLINE uses this document to review your customers’ credit profiles and determine their eligibility for factoring.
We require you to complete a form as part of the trucking factoring application process. You will need to enclose these documents alongside your application:
- Business ownership identification
- Personal identification
- Employer Identification Number
- Customer contracts
Articles of incorporation and other relevant corporate documents
Accounts Receivable Aging Report
An accounts receivable aging report lists all your outstanding invoices by due date. Factoring companies for truckers need this report to determine factoring fees and cash advance eligibility.
altLINE will consider invoices that are 30 to 90 days outstanding, but invoices for customers who say they cannot pay may be ineligible for factoring.
Frequently Asked Questions About Our Freight Factoring Services
Here are some common questions about trucking company factoring answered:
Do you need to run a credit check before getting started?
altLINE runs a credit and background check on all trucking company owners. However, there are no minimum credit thresholds for approval. Background checks are reviewed for financial-related crimes or felonies. In the event a borrower has a spotty background, approval with altLINE may be in question, but in the event the borrower is disqualified, altLINE will often work with the borrower to identify a trucking factor that is willing to help.
Do you require UCC filings when factoring trucking invoices?
Upon executing a term sheet, altLINE will file a UCC on the client’s business. This UCC filing allows altLINE to properly secure the collateral (i.e. the invoices) it plans to advance against when the factoring facility is in place. UCC filings are an integral part of any form of lending.
Is trucking factoring a debt or loan?
Trucking factoring is neither debt nor a loan. Invoice factoring is the sale of your invoices to a third party. The money advanced against these invoices will be repaid by your customers. However, altLINE is a recourse factor, so you may need to pay the cash advance back if your customer fails to pay their invoice.
Do you offer non-recourse trucking factoring?
altLINE only offers recourse trucking factoring. While you must repay the cash advance if your customer fails to pay, recourse factoring structures often allow for factors to extend lower rates and larger credit limits on your customers.
Grey was previously the Director of Marketing for altLINE by The Southern Bank. With 10 years’ experience in digital marketing, content creation and small business operations, he helped businesses find the information they needed to make informed decisions about invoice factoring and A/R financing.