What is factoring when it comes to trucking?

Semi Truck on highway at sunset
Semi Truck on highway at sunset Image: depositphotos.com

You’ve probably already heard the term «factoring». This is a very convenient tool for transport companies, which allows you to quickly receive payments and ensure cash flow. This is very profitable and popular for several reasons, which we will describe below.

However, it is very important to first understand the basic concepts and conditions of factoring. After that, you will be able to use the services of the respective companies with full confidence.

Freight factoring — what is it, and how does it work?

In simple words, freight factoring is an opportunity to get paid before the customer pays you. What for? By sending an invoice, you understand that by law you can wait for the invoice to be paid in 30 or 60 days. And you need to pay the driver, buy fuel, pay taxes, etc. Waiting a few months isn’t an option. That is why you need a way that will allow you to get money earlier. This is where factoring for a trucking company comes in handy, as it said here!

How does it work? You are «selling» your invoices to a special company. It immediately pays you 97% of the bill. You will receive the remaining 3% when the client pays the entire amount. And the factoring company will give you the remaining money. That is, you sell invoices, and this is no longer your problem. Now the factoring company is waiting for payment from your client. And at this time you are already spending money on the order.

This is very useful for transport companies. Many owners close their businesses precisely because they wait a long time for funds to be credited. That is, because of this, they cannot pay drivers, salaries and support the activities of the trucking company.

And the help of factoring helps to keep the business afloat. You don’t need any more loans or debt!

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