4 Misconceptions of Freight Factoring
Posted April 8, 2015
Updated May 14, 2018
Freight factoring is a convenient and reliable way to get paid for freight bills instantly, but it’s a business rife with misconceptions – and we wanted to outline some of the most common.
Only those struggling with money or credit need to factor their invoices. This is probably the biggest misconception in factoring, not only in the trucking industry, but also in staffing, manufacturing, distributing, apparel and more. There are several reasons that a company may decide to factor their invoices, most of which have nothing to do with having financial difficulties or poor credit.
A couple examples are:
Start-ups. If you are just starting your business, it will be virtually impossible to acquire bank loans or credit. Factoring allows you to increase cash flow so that your business can grow. Love’s Financial doesn’t require any length of operating history.
Rapid Growth Period. If your company hits a growth period -- more so than expected -- it can limit the amount of capital you can borrow from the bank, as well as credit. Factoring will accommodate this growth period because the factor is lending on the businesses accounts receivable, which is verifiable. Love’s Financial can help your business no matter how quickly it grows.
There’s no such thing as non-recourse factoring. Many factoring companies claim to be non-recourse, meaning that they assume the credit risk on your factored loads. Rumor has it that many times, this is not the case. If the factor isn’t paid within 90 days, they will generally require you to buy back the invoice. Ask the question, “Will you please explain your non-recourse product in more detail?”
This will inevitably get you the answer you are seeking. At Love’s Financial, non-recourse will protect your business should the debtor go out of business or be unable to pay, so long as it’s through no fault of the carrier.
You get locked into long-term contracts. Many people are concerned with being locked into a 3-year contract with a factoring company and having difficulty leaving after the contract period is up, if ever. At Love’s Financial, all we ask for is a 12-month commitment.
You’re forced to factor ALL your customers (all invoices). Some who have asked us about factoring say that they’ve been told that you must factor everything, even if you have some customers that pay you within days. With Love’s Financial, you are not required to factor all of your customers. If you have customers who pay quickly, continue to bill them as you do now. All we ask is that once you begin to factor a specific customer, continue to factor that customer.
To learn more about Freight Factoring or to get a quote, click here.