The concept of freight factoring has certainly gained some popularity. A steady cash-flow is imperative to every business. Factoring ensures this by lending you money based on your invoice and helps you to maintain a constant workflow. A lot of things can happen from the client’s end to delay your payment process, but that should not hinder your enterprise. With this concept, you do not have to depend on banks that run a whole lot of processes to sanction a loan.
However, the whole process of factoring just does not involve the exchange of money and invoice. There are a few facts that you must know so that you are not thunderstruck during the process. A factor will maintain a certain level of safety standard, and you cannot blame them for following a few protocols.
Here is a list of 3 facts that you must note down if you own a freight service and intend to go for factoring.
1. Factors check credentials of both you and your client
This is the first step when you contact a freight factoring company with your invoice. They will run a quick background check of your business which involves registration, legal papers, revenue rate, cash-flow history and more. They will conduct a similar check on your clients as well. So, both you and your client will have to present your papers to the factor.
The firm will pay you money and will expect the same from your client. It is only logical that they will look into the credentials of both parties.
2. Your invoice counts only after you have transported the load
You cannot present an invoice whose delivery is still pending. Generally, you can contact the factor when you sign the contract with your client. The agency runs its necessary checks and approves the loan. You make the delivery and collect the invoice from your client. On presenting this, the factor transfers you the decided amount.
Approval takes less than 24 hours in case of a legit freight service. However, you receive the money only after you have delivered the goods. Do take a note of this difference.
3. Factors accept payments directly from your client
You do not come in when the client actually pays. Factors do charge a commission for their service and take the net payment against the invoice directly. For instance, if you are to receive $100 from your client, the factor will pay you $95 at the time of approval. However, when your client pays, they transfer $100 to the factor.
The whole process gives the factor a commission of $5 or 5%. This is primarily how they earn. Every single entity is in a win-win situation with this.
To conclude –
There are also agencies that claim deposits for lending you the service but most do not. It’s ultimately your call and your cost-benefit analysis that will tell you whether to opt for the service or not. However, freight factoring does bail you out at times of delay payments and this fact is undeniable. Let these 3 facts act as guiding pointers to you and help you with the right choice. Go to your drawing boards and decide what’s best for your business.