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The benefits of freight factoring: Why you should start now

June 3, 2024

Most businesses today are built on some form of financing, whether that’s a business infrastructure loan or a long-term line of credit. The trucking industry is no different; however, many companies are not sure what kind of financing they need, which options are most valuable, or what fleet factoring can provide that a typical business loan cannot.

Fleet factoring is not as complicated as it might seem, and the best part is that choosing a company with expertise in the financial needs of trucking companies can make it even simpler.

We’re talking all about freight factoring, or fleet factoring/invoice factoring, AR Finance, and why it’s both a viable and valuable financing solution for your trucking company — covering concerns, qualms, and queries. If the question is “When should I start freight factoring?” The answer is now.

3 common eligibility concerns when considering a freight factoring service

Certain types of loans require businesses to meet all kinds of requirements to qualify. Invoice factoring for a trucking business is a bit different — because freight factoring companies are more concerned about your customer’s financial history and reliability than they are yours.

Still: Here are three common eligibility concerns you may have before signing a factoring agreement.

Credit score

Many small fleets might worry about their credit score as a factor for eligibility. However, your customer’s credit history is what’s more important here. Here’s why:

  • To determine risk: Factoring companies need to evaluate the creditworthiness of your customers to determine the risk associated with purchasing your invoices. If your customers have a history of late payments or financial instability, it could increase the risk of non-payment or default on the invoices — a risk freight factoring companies may not be willing to take on.
  • To determine your advance rate: Your advance rate is often based on the creditworthiness of your customers. If your customers have strong credit ratings, the factoring company may offer you a higher rate, allowing you to access more working capital.
  • To determine what their collection efforts may look like: Factoring companies often handle the collection process for invoices they purchase. If your customers have a poor track record of paying their invoices on time, the factoring company may need to allocate more resources to collections efforts, which can affect their profitability and willingness to offer you a factoring agreement.

Company size and history

Because factoring companies are most interested in your customer credit scores and financial health, the size and/or tenure of your own company is not typically an issue; however, here are a couple of items that they may have a look at:

  • Experience and management: A trucking company’s history provides insights into its management, operational efficiency, and industry experience. Factoring companies may prefer to work with companies that have experienced management teams capable of effectively managing operations and finances. Additionally, experienced trucking companies are more likely to have established relationships with shippers and brokers, which can facilitate smoother invoice processing and collections.
  • Long-term partnership potential: Freight factoring companies often seek long-term relationships with their clients. They may be more inclined to work with trucking companies that demonstrate potential for growth, stability, and a commitment to maintaining a mutually beneficial partnership over time.

As long as you have reliable and credible customers, your eligibility to factor is much greater. 

Balance sheets and assets

Because most business loans are based on credit history, balance sheets, cash-flow statements, and assets, you may worry that you’re not eligible for the freight factor. However, there are many factors that go into determining eligibility.

Factoring agreements are partially based on how long you have been in business and how robust your balance sheets are, but your customer credit plays a big role as well. 

If you are aligned with customers who are in good financial standing and have strong credit and payment patterns, you will most likely qualify for invoice factoring — which means the time is right to start experiencing the advantages of fleet factoring.

The benefits of freight factoring (and why you should start now)

Freight factoring just makes sense for some smaller businesses compared to traditional loans — and there are a lot of good reasons why:

Improved cash flow

One of the foremost benefits of factoring — especially for smaller operations — is immediate cash flow. When cash might otherwise be tied up in accounts receivable, factoring can help small- to medium-sized fleets meet everyday demands without signing themselves away to high interest loans or relying solely on quick pays that cost a fortune or loads that don’t really pay well. Everything from employee insurance and benefits to fuel costs and vehicle maintenance needs can be met faster with factoring.

Same-day payment remittance

It’s not unusual for a customer remittance to be anywhere from 30 to 90 days — and many fleets cannot wait that long for payment. Fleet factoring provides same-day payment while someone else takes on the administrative burden of collections.

Since you will no longer need to spend time and resources on follow-ups or dealing with late payments, you can focus more on your core business operations, such as managing logistics and improving service quality for valued customers.

Opportunities for company growth

Fleet operations can sometimes feel like a responsive business, measuring success based on the deliveries that are made from day to day — and it’s common for growth strategies to be dismissed because of lack of capital.

An experienced factoring company with a solid financial structure can help provide the capital and flexibility required to expand and grow your trucking business. Because factoring is not a bank loan, your company will assume no debt — giving you the peace of mind and confidence needed to meet your growth goals.

Gaining credit and credibility

Because factoring does not rely on your business’s credit history, new, smaller companies can take advantage of factor financing without worrying about having little to no credit history. While factoring enables growth, that growth leads to financial sustainability and structure, eventually culminating in a stronger credit history and business credibility.

Outsourced collections and billing

An added benefit of working with a freight factoring company is that they take on the full responsibility of collections and billing, so you don’t have to worry about chasing customers for money. Instead, you can rest assured that your money is already in your account while your factoring service handles customer payment.

WEX Capital can guide you throughout the entire factoring process while tailoring a solution to meet your unique business needs.

Partner with a top factoring company for your trucking business

There are lots of great freight factoring companies in the industry, each with unique value props, rates, etc. To make your decision a little easier, we’ve given you an overview of how WEX Capital stands out from the crowd.

WEX Capital

WEX Capital makes trucking factoring easy. Protect your business from lost revenue with a tailored freight factoring service that meets your unique needs.

Key capabilities include:

  • Same-day funding: Factoring with WEX means you get funds within 24 hours with immediate access to your accounts receivable.
  • Fuel card integration: Direct your factoring funds straight to your fleet fuel card for drivers to spend while collecting rebates and enjoying discounts on fuel and maintenance.
  • Invoice quantity flexibility: WEX doesn’t impose minimums on your business; it can factor as few or as many invoices as you need.
  • Reliable customer service: WEX has an industry-leading team with decades of experience in trucking finance. You’ll be assigned a dedicated representative and receive a free credit analysis.

Freight factoring is made quick and easy with WEX Capital

When you started your company, you knew there would be challenges. It’s common knowledge that starting a business can involve setbacks and obstacles before success can be realized. Luckily there are often ways to address obstacles before they become hindrances.

No matter how small or large, young or old your fleet is, factoring offers myriad benefits. And because fleet factoring is a debt-free solution, unlike traditional loans, you can have the confidence to make bigger, better decisions without being held hostage by high interest rates.

If you’re tired of “business as usual” (waiting 30-90 days for a payment and longing for your business to grow faster), partner with WEX now!

Learn more on how to better manage your over-the-road fleet:

All fleet cards are not the same, and different types of fuel cards suit the needs of different kinds and sizes of businesses. View WEX’s fleet card comparison chart to see which fleet fuel card is right for you.

Apply for a fleet card today!

Editorial note: This article was originally published on September 17, 2018, and has been updated for this publication.

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