Navigating the world of truck factoring can be daunting, especially for those new to the industry. Truck factoring, also known as freight factoring or transportation factoring, is a financial transaction where a business sells its accounts receivable (invoices) to a third party (the factoring company) at a discount. This practice allows trucking companies to get immediate cash flow instead of waiting for their customers to pay their invoices, which can sometimes take weeks or even months.
Related: 7 Benefits of Factoring for Trucking Companies
Related: Legal Considerations When Signing a Factoring Agreement
However, before diving in, it’s crucial to interview potential factoring companies thoroughly.
Here are the top 7 questions to ask a truck factoring company before signing up.
1. What Are Your Fees and Rates?
Understanding the fee structure is paramount. Factoring companies typically charge a percentage of the invoice value, but additional fees may apply. These could include application fees, processing fees, late fees, and more. Ask if there are any monthly minimums, while less common now, some factoring companies still have this in their contract.
Pay attention to the advance rate and ask if there are any reserves or escrow. The advance rate is the percentage of the invoice you get up front, and a reserve is a percentage withheld by the factor until an invoice pays. Some factors will pitch you a low factoring rate but hold a percentage in reserve.
*Always ask for a detailed breakdown of all potential costs to avoid surprises later.
2. How Does Your Factoring Process Work?
Different companies have different processes. Some may offer advances on invoices immediately, while others may take a few days. Understanding the timeline and steps involved will help you manage your cash flow more effectively.
Additionally, inquire about the method for submitting invoices and receiving funds. This is also a good question to understand the level of service you will receive from the factoring company. Will you have an assigned Account Manager or will you have to work through a general customer service queue?
3. Can You Send Me a Copy of a Contract before I Complete an Application?
If the factoring company won’t send a copy of their agreement before you sign up, it can be a red flag. Some factoring companies require you to sign a long-term contract or commit to factoring a minimum volume of invoices each month. It’s essential to know if you’re locked into a contract and what the penalties are for breaking it.
Pay attention to the exit terms, know exactly when you have to submit your notice to terminate to avoid any early termination fees. Some factoring companies make this confusing in their contracts, so ask the question. This information can help you assess whether the company is flexible enough to accommodate your business needs and if they’re going to be a good partner.
4. How Quickly Will I Receive Funding?
One of the primary benefits of transportation factoring is quick access to cash. Ask how long it typically takes to receive funding after submitting an invoice and if there are any fees to receive your deposit. While some companies offer same-day funding like iThrive, others may take longer. Speed is critical to maintaining your operations smoothly.
5. Can You Provide References or Testimonials?
Reputable factoring companies should have no issue providing references or testimonials from satisfied clients. Speaking with other trucking companies about their experiences can give you valuable insights into the company’s reliability and customer service.
You should even come across reviews doing your own online research. Use review sources like Google, TrustPilot, or the Better Business Bureau to see what real customers have experienced with the company.
6. What Happens if My Customer Doesn’t Pay on Time?
Understanding the factoring company’s policies on late payments is crucial. Will they charge additional fees? How will they handle the situation? How do they handle chargebacks to the carrier in these situations?
A factoring company focused on customer service will work with you in these situations. Knowing this in advance helps you prepare for potential scenarios and manage your expectations.
7. Is There an Easy Exit Strategy?
Circumstances change, and you might want to stop factoring your invoices at some point. Ensure the company has a straightforward exit strategy without excessive penalties. Understanding how you can end the relationship if necessary is essential for long-term planning.
Related: Six Questions You Should Ask a Factoring Company
Related: iThrive Funding | FAQs
Choosing the right transportation factoring company is a significant decision that can impact your business’s financial health and operational efficiency. By asking these critical questions, you’ll be better equipped to make an informed choice that aligns with your needs and goals. Remember, the right factoring partner can be a valuable asset, helping you maintain steady cash flow and focus on growing your trucking business.
iThrive Funding offers full transparency and is here to provide you with the answers you seek. Contact iThrive here.
