Freight bill factoring, also known as freight factoring or transportation factoring, is a financial service specifically designed for the transportation industry. It involves a company selling its accounts receivable, specifically freight bills or invoices, to a third-party financial institution called a factor.
Freight bill factoring Overview
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► Category - Factor companies
► Availability— invoice factoring, Trucking invoice factoring, Accounts receivable financing
► Factoring information - Visit the Official Site
► Official Website - https://www.factoringfast.com/How does freight bill factoring work?
Transportation companies, such as trucking firms or freight brokers, provide services to their customers and generate invoices for the services rendered.
Instead of waiting for the customers to pay the invoices, which can take weeks or even months, the transportation company sells those invoices to a freight factoring company or factor.
The factor verifies the invoices and advances a significant portion of the invoice amount to the transportation company, usually around 80% to 95% of the total value. The exact percentage may vary based on the agreement between the factor and the transportation company.
The factor assumes the responsibility of collecting payment from the customers mentioned on the invoices.
Once the customers pay the invoices, the factor deducts their fee or discount rate, typically a small percentage of the invoice amount, and remits the remaining balance to the transportation company.
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Freight bill factoring benefits:
Freight bill factoring provides several benefits to transportation companies:
Improved Cash Flow: By receiving an immediate advance on their invoices, transportation companies can access the funds they need to cover their operating expenses, such as fuel, driver wages, and maintenance costs.
Reduced Administrative Burden: Factor companies handle the accounts receivable management, including invoice verification, payment collection, and credit checks on customers, which reduces the administrative workload for the transportation company.
Mitigation of Payment Delays and Bad Debts: Factors assume the risk of customer non-payment or delays, allowing transportation companies to protect themselves against bad debts and maintain a steady cash flow.
Business Growth Opportunities: With steady cash flow and improved working capital, transportation companies can seize growth opportunities, such as purchasing new equipment, expanding their fleet, or taking on additional contracts.
