freight bill factoring

How does freight bill factoring work?

Let’s take a look at factoring in action. Say a trucking company delivers a load for a shipper that negotiated 60-day payment terms. Yet the trucking company owner can’t wait two months to pay the driver of the truck, the fuel bill for the diesel used to deliver that load, and other fixed costs. The trucking company owner decides to factor that shipper’s invoice to get paid now instead of waiting two months.

After the driver submits paperwork documenting that a load has been accepted at its destination, the trucking company sends the documentation to the factoring company. That paperwork would include the copies of the signed bill of lading, proof of delivery, rate confirmation, invoice, and any additional charges. The factoring company sends the trucking company up to 100% of the value of the invoice, minus a small factoring fee, as early as the same day that the paperwork has been submitted.

Note that some factoring companies that specialize in freight bill funding, such as Interstate Capital, go a step further and provide funding even before delivery. As soon as the load is picked up, these factoring companies pay the trucking company a fuel advance and a partial advance on the invoice. These funds can typically go out by within two hours of pick up.

Trucking companies can use their funds from the factoring company on whatever they choose. They can cover bills, purchase new equipment, or invest in whatever is needed to keep trucks on the road and increase profitability. By speeding up their cash flow through factoring at a top-tier factoring company such as Interstate Capital, thousands of trucking companies have doubled and tripled in size and revenue and have continued to grow further.

What is freight bill factoring?

What is freight bill factoring?

Freight bill factoring is a very popular form of financing throughout the trucking industry because it is a great fit for the typical trucking company’s business model.

Essentially, factoring pays you upfront on your outstanding freight bill. The factoring company advances you the value of your invoice, minus a small factoring fee, so you don’t have to wait 30, 60 or even 90 days for brokers and shippers to pay you for loads.

When a factoring company “purchases” your freight bill invoices, here’s what happens:

The factoring company …
1. Sends a “notice of assignment” to your customers to tell them you have authorized the factoring company to collect on that invoice
2. Advances you 100% of the value of the invoice upon delivery, minus a small fee
3. Collects on that invoice from your customer
4. Provides you 24/7 online access to view payments posted

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Easy and Fast Application Process

Getting approved for freight bill factoring is much faster than getting approved for a bank loan and cheaper than online cash advances. Even if your trucking company has been turned down by lenders in the past based on a lack of collateral or a poor credit history, you can get set up with a factoring company right away.

No collateral? No problem

Well-established factoring companies don’t require that you put up personal property to guarantee a loan. A factoring advance is not a loan and it does not need to be secured by assets.

No credit history? No problem

If you don’t have a track record of strong revenues or a great credit report, most banks will turn down your loan request. However, factoring companies don’t require you to have been in business for a certain number of years or have a perfect credit history. They review your application for funding based on your customers’ ability to pay their bills in a timely manner. Your customers’ creditworthiness is much more critical than your company’s payment history or financial background.

No time? No problem

When you are pressed for time with significant financial needs, a top-tier freight bill factoring company such as Interstate Capital can get you started within a day or two of receiving your paperwork. Interstate Capital can deposit funds in your bank account on the same day you submit your invoice.

Common Factoring Questions

Common Factoring Questions in Freight Factoring1. Do factoring companies lend money?
Factoring companies are not like banks or online lenders. They do not lend you money that you must pay back out of unknown future revenue. Instead, a factoring company pays you on loads you have delivered. You already earned that money. Factoring does not incur debt that is removed from your bank account or charged to your credit card. It is not a loan that must be repaid, but rather an advance.

2. How are factoring rates calculated?
You do not need to factor all of your invoices: top-tier factoring companies allow you to select which invoices to factor. Some customers may offer quick pay, for instance. The good news is that when you factor your freight bills, you can work with any broker and not just the ones providing quick pay options.

3. Could factoring companies change my customer relationships?
Your freight brokers and shippers already work with motor carriers factoring their freight bills. Many trucking company owners find their customer relationships improving when they are no longer trying to collect payments from their customers at the same time they are asking for more business. When your customers know you are working with a factoring company, they know you have the financial resources to hire good drivers and keep your trucks on the road.

4. How does factoring affect my customer relationships?
Today’s top factoring companies specializing in transportation provide many value-added services such as fuel advances, discount fuel cards, professional collections services, free credit checks on brokers and shippers, back-office accounts payable and receivable services, invoice preparation and mailing, discounts on tires and truck maintenance, 24/7 access to real-time payment records, and much more.

5. How are factoring rates calculated?
The factoring rate shows how much invoices will be discounted and is quoted as a percentage of the invoice amount. Rates are typically based on invoice volume and value. Since factoring is not a loan and factoring rates are usually fixed, annual percentage rates cannot be determined when rates are set. Another difference between an annual loan interest rate and a factoring rate is that the factoring rate includes many value-added benefits.

6. Who uses freight bill factoring?
Trucking companies of all sizes, ages, and financial stages factor their freight bills to access the funds sitting in their accounts receivable. Getting paid on delivery appeals to all trucking companies, from startups to long-established motor carriers.

5 Signs You Need Factoring

  1. If you’re waiting too long to get paid by your customers:
    It’s possible that you’re waiting up to two months to get paid for loads you delivered weeks ago. Yet you have monthly expenses that need to be paid. It’s not uncommon to wait 30, 60 or even 90 days for slow-paying brokers or shippers to pay, but this delay puts a lot of pressure on your business. When you partner with a factoring company like Interstate Capital, you receive a part of the payment you will earn when you’ve loaded and the rest on the same day you submit your invoice, bill of lading, rate confirmation, invoice, and proof of delivery.
  2. If you’re spending too much time on credit checks, invoicing and collections:
    As your business grows, the number of hours you spend on credit research, invoice processing, and prodding customers to pay is also growing. This time that could be much better put to use to effectively run and grow your company. Free up your time and save money by partnering with a factoring company to take on these chores. These are critical business support services that are not provided by banks or online lenders.
  3. If you don’t want to take on debt to cover expenses:
    Additional debt translates into additional stress. Do you want the risk of borrowing money without knowing if you can pay it back? No one can be sure of their future earnings – anything can happen. Online lenders offering merchant cash advances may be fast in sending you money, but they invariably charge high interest rates and penalties that simply compound the debt and cut deep into any potential profit margin. Since factoring is not a loan, but rather an advance on revenues you have already earned, no debt is incurred.
  4. If you are turning down customers with long payment terms:
    Factoring your freight bills opens up new opportunities for you. If you’ve been limiting your company to work only with brokers offering quick pay, your missing out. Factoring gives you flexibility without hurting your cash flow. This means you can take on loads from any customers and your business can grow.
  5. If your trucking company is not growing:
    Instant access to cash means that you have the working capital you need to invest in your business. Whether you want to hire a new salesperson who will bring in more business, upgrade your technology, buy more power units or trailers, you will need money to make money. Factoring companies can put you in the financial position you need to grow your company.

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What is a Factoring Agreement?

factoring agreementWhen you work with a factoring company, you will sign a factoring agreement that outlines what you can expect from them and what they can expect from you. Agreement specifics vary, but all factoring agreements should outline the process, each party’s responsibilities, and the fees. At a minimum, you can expect the following in a factoring agreement:

  • The client will “sell, transfer, convey and assign” invoices to the factoring firm
  • The client will provide accurate and true financial information at all times
  • The Notice of Assignment process for the client’s customers to send payments to the factoring firm
  • The expectation that the factoring firm will provide up-to-date reports on invoices and payments
  • A fee schedule that specifies the factoring percentage rate and the advance rate
  • A time limit for the agreement

How Much Will Factoring Cost Me?

If you ask an invoice factoring company representative for a factoring rate quote, be prepared to answer two questions that determine how much you will pay for factoring. Your factoring rate depends on your factoring volume (how much you plan to factor) and payment terms (how long your customers take to pay their freight bills).

  1. Decide which freight bill invoices you’ll factor.
    Some factoring companies require you to factor all invoices; other companies, like Interstate Capital, allow you to pick the invoices to factor. Typically, the higher the dollar figure you expect to factor, the lower the factoring rate. Rates could typically range from 1% to 7%.
  2. Estimate your customers’ average days to pay (“DTP”).
    In some cases, even though your agreed-upon payment terms might be a standard 30 days, some customers may typically take longer and you may need to estimate 40 DTP. If you give your customers extended credit terms, like Net 45 or 60, your average DTP is going to be higher.

For example, imagine that you expect to factor $100,000 per month. If your factoring rate is 2%, your monthly cost of factoring could be $2,000. However, some factoring companies advertise an unusually low factoring rate – and then add on “hidden” fees for extra services or even the basics.

Look beyond the advertised rate and read the fine print to discover any fees that could increase your actual factoring costs.

Seven Questions to Ask Before Choosing a Freight Bill Factoring Company

  1. How long have you been in business?
    A well-established factoring company has years of experience with helping clients succeed and grow their companies. Older companies have stood the test of time in different business climates and the top companies have developed client-friendly online systems and mobile apps to speed up funding.
  2. Do you specialize in transportation?
    The freight business is complex, with many players and financial arrangements. Go with a factoring company with professionals who have an in-depth understanding of how trucking works. You deserve experts who work every day, all day, to keep trucking companies like yours on the road to success.
  3. What other services can you offer me?
    Some factoring companies will provide a full suite of time-saving and convenient services to handle the back-office work associated with your invoicing. Others may have “hidden” charges for those tasks. Be sure you understand what you are receiving.
  4. What is the length of my contract?
    A longer-term contract may be preferable if the freight bill financing company can offer you more flexible rates or other benefits. Most companies offer a 12-month contract, but some might be willing to negotiate with you for a shorter contract.
  5. What are the fees?
    Find out if you will be paying a flat factoring rate only or a tiered rate, based on how many invoices you’re factoring and how much those invoices are worth. Ask about other costs, such as money transfer costs, application fees, and additional costs for back-office tasks, like collections and credit checks.
  6. Can you offer me flexibility in the number of invoices I will factor?
    You may not wish to factor all your invoices. You may have different agreements with some of your customers. Discuss your needs and see if the company will be able to accommodate your requests.
  7. Does your company have a mobile app for fast funding?
    Today’s user-friendly mobile applications are speeding up the pace of all kinds of business transactions – and the factoring process lends itself perfectly to this convenient and time-saving technology. Ask your potential factoring company about their smartphone mobile app for freight bills. If they don’t offer this benefit, look for a company that does provide an easy-to-use app and user support. With your smartphone, you can instantly scan and upload your rate confirmation, bill of lading, invoice, proof of delivery and more. You will both save time and have all your documents organized and accessible in one place.

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How Can You Choose a Factoring Company?

How Can You Choose a Factoring Company?When you’re ready to factor your freight bills and enjoy the benefits that come with increased working capital and financial stability, how will you choose your factoring company? Keep in mind these variables – “The Five Es” – as you make your choice:

Experience in transportation factoring:
An older company tends to have both the track record in helping clients succeed and the financial stability you need.

Exceptional customer service:
You want your funding requests to be fulfilled fast. A dedicated customer service professional who is eager to help and serves as your single point of contact (instead of transferring you from place to place) can expedite your funding.

Extra benefits:
A factoring company with expertise and experience in the transportation industry will have developed extra money-saving programs like fuel discount cards and equipment leasing options and time-saving mobile apps.

Ease of managing your account:
Leading factoring companies have invested in on-line programs and mobile apps that make submitting funding requests quick and easy. You want to be able to track payments in real-time and get a bird’s eye view of your accounts.

Expenses that are transparent:
An ethical factoring company will provide you clear and reasonable advance rates and factoring fees with no “hidden charges.” You will know upfront about all expenses and fees.

Why is Factoring Popular with Trucking Companies?

The economy has led to tighter lending policies and lower savings:
In our era of increased banking restrictions and decreased savings rates, many trucking companies struggle to keep up. Instead of being late with payroll or equipment payments, your company can continue with business as usual after the factoring company pays you upon delivery of your loads.

Trucking companies need flexible financing alternatives:
Freight companies can have up-and-down cash flow. Unlike a fixed-limit bank loan or line of credit, factoring provides you with your most flexible funding options. With factoring, you’re not forced to make loan payments when your revenue is low and your funding grows when your revenue is high.

Companies can make important purchases:
Without a positive cash flow, trucking companies aren’t able to invest in another tractor or trailer. With factoring, you can have money upfront to invest in your future profitability. Your cash isn’t tied up in aging accounts receivable, an important concern for smaller businesses. It’s in your pocket, ready when you need it.

Bonus Features for Factoring Clients

Factoring companies that specialize in freight bill funding and that have been in business for many years have the expertise and the resources to provide value-added benefits for clients. Interstate Capital, a transportation factoring leader since 1993, provides one of the best benefits packages in the business for its motor carrier clients.

Free Fuel Discount CardsFree Fuel Discount Cards

Interstate Capital provides fuel discount cards to clients to give you both savings and convenience. This free fuel discount card saves you up to ten cents on every gallon. If you drive 100,000 miles a year and get five miles to the gallon, that means you’ll save $2,000 a year on diesel fuel. The Interstate Capital fuel discount card also gives you the convenience of receiving fuel advances sent directly to your fuel card account. As soon as you load, up to 50% of the value of the freight bill for that shipment is added to your Interstate Capital fuel card. After the load is delivered, you can choose to expedite the rest of your payment onto your card or into your bank account.

Mobile AppMobile App

To speed up the verification and funding process, a very small number of factoring companies have developed mobile applications that enable clients to upload invoices and other paperwork directly from their smart phones. The Interstate Capital Mobile App is an industry-leading app that instantly scans everything from bills of lading and rate confirmations to proof of delivery documents and invoices. The result: less hassle and faster funding. Your paperwork is organized and stored for easy viewing and future reference.

Funding from CopiesFunding from Copies

Some factoring companies require you to submit original documents before approving your invoices: they want you to mail or overnight your signed bills of lading showing that freight was delivered. Interstate Capital processes your funding requests quickly and efficiently without requiring originals. Simply fax, email, or upload images of documents on the Interstate Capital Mobile App and get your cash right away. This means no more searching for TripPak drop-offs or FedEx boxes.

Flexibility of Funding MethodsFlexibility of Funding Methods

With Interstate Capital, you choose how and when you receive payments – and your drivers get to choose also. Offering their drivers a menu of payment options gives trucking companies a competitive advantage with today’s growing shortage of qualified drivers. Interstate Capital funding options include free direct deposit (ACH) or wire transfers into a bank account, paper checks, fuel advances on fuel cards, or Comcheks to cash at truck stops and selected cash offices.

Tire and Maintenance Discount ProgramTire and Maintenance Discount Program

Some transportation factoring companies offer free access to various discount programs for unlimited savings on tires, oil changes, maintenance and repair services. The Interstate Capital Tire Discount Program saves clients up to $40 per tire on an unlimited number of tires from selected major brands. This discount program also gives clients access to emergency roadside services and discounts on hotels, motels, electronic logging devices, mobile phone service plans, and other trucking expenses.

Client Web SiteClient Web Site

To enable clients to stay on top of their accounts receivable, some factoring companies have created comprehensive user websites for businesses to track incoming revenues and outstanding balances. The Interstate Capital client website gives business owners an effective and efficient financial management tool. Clients receive one-on-one training on how to use the site for both the big picture and the details as well as how to run helpful reports.

Professional Collections ServicesProfessional Collections Services

To enable clients to stay on top of their accounts receivable, some factoring companies have created comprehensive user websites for businesses to track incoming revenues and outstanding balances. The Interstate Capital client website gives business owners an effective and efficient financial management tool. Clients receive one-on-one training on how to use the site for both the big picture and the details as well as how to run helpful reports.

Equipment FinancingEquipment Financing

To better serve clients with their equipment needs, some transportation factoring companies offer owner-operators and fleet owners financing for over-the-road trucks. Interstate Capital provides flexible, low-rate financing and refinancing programs for clients for vehicle purchases and leases. Clients can qualify, regardless of their credit history or previous experience with tractor and trailer financing.

As one of North America’s largest independent factoring companies, Interstate Capital can approve financing requests in a matter of hours and without outside interference. The convenience of payments coming directly from a client’s Interstate Capital account, more and more clients are taking advantage of this affordable program.

Credit ChecksCredit Checks

With today’s increase in business fraud and online transactions, knowing a customer’s creditworthiness is critical in a motor carrier’s business decisions. Most factoring companies are heavily invested in studying clients’ customers’ credit histories and payment patterns. Interstate Capital maintains extensive credit records on their own experiences with tens of thousands of their clients’ customers and has instant access to credit reports on hundreds of thousands of companies. Interstate Capital offers free credit checks to clients and free consultation with the company’s in-house credit analysts.

Load Board MembershipLoad Board Membership

A small number of transportation factoring companies have set up free load boards to add freight matching services for their clients. These online load boards connect motor carriers with brokers and shippers. Interstate Capital was the first factoring company to launch a load board that was fully integrated with quick pay and factoring services.

About Interstate Capital

Today that load board,, is the world’s largest completely free load board, with more than 70,000 registered motor carriers, freight brokers and shippers. Interstate Capital clients are automatically entered into membership and can receive one-on-one training on how to get the most out of this easy-to-use site, including extras like receiving email alerts when a load is listed that matches their location and equipment.

Founded in 1993, Interstate Capital now employs more than 100 dedicated factoring professionals and has successfully funded over 9,000 motor carriers. With locations in California, Texas, and New Mexico, Interstate Capital purchases nearly $1 billion dollars of invoices annually from clients located throughout North America.

Business Development Team

To better serve the transportation industry, Interstate Capital owns the world’s largest FREE freight matching site,, which posts nearly a million loads per month. Interstate Capital also owns its own transportation credit bureau. Load board members have 24/7 access to 10,000+ free freight broker credit reports.

Interstate Capital’s team of two dozen dedicated, experienced account managers provides one-on-one client servicing to ensure personalized attention. Interstate Capital is one of North America’s largest and best funded independently owned factoring companies, so approval and funding decisions are made quickly and without outside interference.

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