Transportation Factoring – A financial arrangement between a transportation company and a truck factoring company where the transportation company sells its freight invoices in exchange for a percentage of the money upfront, typically around 75-80%. When the invoice is paid, the freight factoring company pays the remainder of the amount, minus a small fee for its services. Other words for trucking factoring include: transportation factoring, freight factoring and truck factoring.
Factoring company – Also known as an invoice factoring, accounts receivable factoring or a factoring service, a factoring company is a business focused solely on buying invoices and offering cash in return. The largest industries these factoring companies work with are the construction, trucking and temporary staffing fields.
Accounts Receivable (A/R) for Trucking – The money the requester of the loads owes the trucking company for carrying the loads to their destination. When a trucking company works with a truck factoring company, the factoring company purchases the accounts receivable and then sets about receiving payment for it.
Recourse and Non-Recourse – These terms explain whether or not the factoring company will be taking the credit risk in the event of non-payment or a client going out of business. With recourse accounts receivable factoring, the trucking company will have to buy back the invoice if it isn’t paid within a set period of time. With non-recourse factoring, the factoring company assumes all the risk whether or not they ever receive the money. Since factoring companies bears more risk with non-recourse factoring, they typically deduct a larger fee from the invoice amount.
Reserve Account – Most freight factoring companies keep a percentage of the invoice in a reserve account while they wait for payment. Typically, the transportation company will receive around 90% of the invoice right away. The other 10% is placed in a reserve account until the client remits payment. Once they do, the money in the reserve account is given to the trucking company after the fee for the truck factoring services is taken out. Trucking factoring companies use the reserve account as a security precaution in case they never receive money for the invoice.
Freight Broker – The company that serves as a liaison between a transportation company and the company requiring shipping services. Rather than actually shipping anything, the freight broker works as an intermediary to accommodate the needs of both companies.