How Freight Factoring Works

Freight factoring is a financial tool that allows trucking companies to convert its unpaid freight bills into instant cash through financing. In essence, the freight broker factoring company provides funding and uses the trucking companys bills as security. The trucking company may use the money for maintenance, repairs, fuel, or other company expenses such as monthly bills and salaries.

Freight factoring is a straightforward solution. The freight factor buys the trucking companys accounts receivables, often paid in two installments. The first installment pays for 90 percent of the unpaid invoice and wired to the companys bank account the instant the load is sent and validated. The trucking company receives the balance of 10 percent, minus the freight factoring fee, the instant the customers pay in full for the freight bills. Small freight companies often meet the requirements for a single installment transaction, where the factor pays up front 97 percent of the total face value of the freight bills. The remaining 3 percent or less will serve as the freight factoring fee.

The benefit of freight factoring is that it will enhance the flow of money within the trucking company. It makes sure that the company always has sufficient money to pay for repairs and other important expenditures. Nearly all trucking companies regularly factor a percentage of receivable to make sure cash is always available for them.

Approval for a freight factoring transaction is simple. The key condition is for the trucking company to have creditworthy clients because the freight bills serves as support for the transaction. Apart from that, the trucking company has to be reputable, running, and does not have major issues other than cash flow.

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