Factoring offers the trucker immediate cash for approved invoices, usually
the same day or within 24 to 48 hours. Factoring gives the trucker the power
to ensure growth without incurring debt. It also allows the trucker to take
advantage of discounts given by vendors for paying on time or before the due
date; it can also minimize the payment of late fees and penalties to vendors
such as phone and cellular companies, insurance finance companies, equipment
financing and leasing companies and most importantly to the IRS (it has the
most expensive interest and penalties).
Important items to consider
when choosing a factoring company:
Advance amount is the percentage the Factor will give you upon purchasing an
invoice; it can be from 80% to 95%.
Reserve is the difference
between the value of the invoice and the amount advanced. The reserve amount
will usually be paid to the customer after the Factor has been paid and it
will be reduced by the discount fee, discussed below.
Discount fees are what factoring companies charge for the purchase invoices.
These fees can either be fixed or tied to the time it takes the factor to
receive payment for the purchased invoice. The fee is usually collected up
front or deducted from the reserve amount.
Additional fees are fees that some factoring companies charge in addition to
the discount fees. These can be charges for credit checks, postage, copies,
low volume and time fees.
charge for credit checks for brokers or shippers that are not in their
system. The charges usually range from $15.00 to $20.00.
Some factoring companies charge you for placing stamps on the envelopes for
mailing your invoices or for courier services (UPS, FedEx, etc.)
factoring companies charge you for making copies of invoices and/or
fees. These are charges for not meeting a predetermined monthly volume.
Factoring companies will purchase invoices with Full recourse or
Most factoring companies will purchase invoices with full recourse; that
means that the factoring company will charge back (ask for return of the
money advanced) an invoice that is not paid within a specified time frame
(usually 50-70 days).
Some factoring companies will purchase invoices outright; that means that
they will not charge back the invoice to the customer if the broker should
not pay for credit reasons or bankruptcy. The only time they would charge
back an invoice would be if there is a shortage or damage to the shipment or
something that is beyond the factor’s control like expired insurance or
authority or other similar issues.
A factoring company will require signing a contract. The term of the
contracts will vary from 6 months to 1 year. Some factors will charge a
penalty to cancel a contract before the term is up.
Some factoring companies
will require you to sell 100% of your invoices to them, some have a minimum
monthly amount and some others have no minimums.
If you require more information regarding factoring or require assistance in
selecting the appropriate factoring company for your needs, please fill out
the information below and send it to us. We will contact you immediately.