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Freight Factoring: The Good and Bad

As if truckers didn’t have enough to worry about, throwing volume requirements on top of everything they balance is just one more straw on the camels back. While freight factoring can lighten the load, even freight factoring can have volume requirements. Before figuring out how volume requirements affect factoring, let’s try to understand freight factoring first – its nature and purpose.

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What is Freight Factoring?

In a setting where asset-based lending (freight factoring) is not involved, the billing process moves slowly. Invoices go directly to the freight broker or shipper instead of the freight factoring company. What happens next is? The driver waits for weeks to get paid. This messes up working capital cash flow, planned purchases, money for fuel, etc.

Freight factoring is a funding arrangement used by truckers or trucking companies to get paid easily. Here’s an example:

  1. Truck driver delivers the load to a customer
  2. Trucker submits the bill to a freight factoring company
  3. Freight factoring company pays trucker

Freight factoring is a smart way to manage cash flow as well as to cover expenses spent by the trucker. It’s an effective solution to keep truck drivers’ operations moving smoothly.

Volume Requirements: More Money to Bill

Although freight factoring has been an essential solution for numerous trucking companies, not all asset based lenders are created equal. The reason is simple; volume requirements set by some freight factoring companies.

For example, some freight factoring companies may require a minimum of $20,000 in expenses to engage in asset-based lending. Little good that does for freight drivers with bills of $15,000 per month. $15k is no chump change, but the trucker is out that much money until invoice payments come through.

What to Do?

Not all freight factoring companies require such high volume minimums or any at all. Some factoring companies offer different payment structures, providing owner-operators more discounts and payment flexibility. Freight factoring companies that offer such flexibility are more tailored towards owner-operators and small-sized trucking businesses.

Freight Factoring Benefits:

  • Improves cash flow

  • More time to focus on operations instead of collecting payments

  • Elimination of debt

  • Covers expenses from fuel, repairs, labor, maintenance, etc.

  • Fast and convenient funding

  • Scalability