What Owner Operators Should Know about Freight Factoring

What Owner Operators Should Know about Freight Factoring

What Owner Operators Should Know about Freight Factoring

Freight factoring works for both parties!

The incentive for the owner-operator is an immediate payment instead of waiting 30, 60 or 90 days. For the freight factoring company, the incentive is the factoring rate of the invoice when purchasing from the driver. The customer’s incentive is they get to do business with a {calm, cool and collected} trucking company that has the financial collateral to wait for a payout.

Customer care is number one.

No matter what your length of contract ends up being with a particular freight bill factoring company, you’ll still have to deal with people behind the scenes when you make inquiries or discuss your options with new contracts or invoices. So, find out if you’ll be dealing with the same representative, or if the company has a more detached approach to customer care.

What’s the difference between flat factoring rates and variable factoring rates?

Phoenix Capital Group offers clients flat monthly rates, but some factoring companies offer variable rates. Here’s what you need to know when it comes flat rate versus variable rates:

  • Variable rates will fluctuate over time.
  • You may end up paying lower rates with some invoices and higher ones for others with variable rates.
  • A flat rate means you pay the same rate for all invoices you factor without the need to worry about fee or interest rate fluctuations.
  • Having a flat rate means you’ll always know how much will be deducted from payments sent by your customers.

What is a notice of assignment and a notice period?

Factoring companies typically send a “Notice of Assignment” to your customers whose invoices they will be financing. This notice informs them that future payments should be sent to the factoring company. The notice period is often considered as the time from when a customer receives this notice to the point when they make the payment for the delivery that was made.

Will my customers see me as financially weak if I factor my company?

This is a common misconception for many owner operators and trucking companies who are new to factoring. Factoring is one of the oldest financing programs and is very common in today’s marketplace and used by many corporations of all sizes as a cash-flow solution. You customer may already be sending payments to us from invoices from another vendor.

Always read the factoring contract’s fine print!

Always read the contract completely! There is always more than you first see, you may get an extremely low factoring quote but there could be other fees to make up the cost, for example; aging fees, per invoice fees, swipe fees, transaction fees, monthly factoring minimums, extremely long contracts and more. These extra costs may not sound scary, but we recommend you consult with other drivers that have experience with unkind factoring companies. The hidden factoring contract fees and requirements could be detrimental to your trucking company. Phoenix Capital Group has no hidden fees, requirements or long contracts. Ask our representatives anything, we are here to help truck drivers/ owner operators succeed!

What’s the bottom line with freight factoring?

Freight factoring isn’t right for every trucking company – we get that! However, it is a very good option worth considering for most trucking companies, here are a few examples of companies that benefit from freight factoring:

  • Owner-operator setups with just a single truck or a small fleet
  • High-volume trucking companies companies
  • Smaller operations with regular, reliable customers looking for a cost-effective way to expand

Factoring terms to keep in mind:

  • Advance Rate – This is the initial amount of the proceeds that are received for every invoice submitted, usually 80% to 95% depending on the industry’s historic dilution and risk ratios. 
  • Reserve – This is the amount of the proceeds that are held back to cover any off-sets or chargebacks and discount fees.
  • Factoring Fees – This is the discount fee that the factor charges based on what was agreed upon, and is deducted from the hold back/reserve.
  • Credit Limit – The initial amount of money the factor assigns to extend to the company or supplier.
  • Account Debtor Limit – The amount a factor is willing to extend for each individual customer the company invoices to.
  • Recourse – This is the number of days the invoice may be outstanding before it is charged back to the Client. Typical recourse days are 90 days.

For a complete list of helpful factoring terms, click here.

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Disclaimer: This article is for information purposes only and is not intended as financial or legal advice. Please call Phoenix Capital Group with any questions or concerns, 623-298-3450. The accuracy of any calculations or rates are not guaranteed, for accurate calculations, rates and advice please call us.