Freight factoring is a financial tool available in the market, wherein you can "sell" your freight credit invoices to a freight factoring company. This factoring company will take the freight invoice off your hands and collect the invoice amount from your customer on the due date. They will pay you the invoice amount in 2 installments. The 1st installment will be wired to your account immediately within 24 to 48 hours and could be around 90% of the Invoice value. The 2nd installment will be wired after your customer makes the payment on the due date minus the factoring company's 'factoring fees'. The percentage of the factoring fees is around 1.5 to 5% and will depend on the credit you have given to your customer, the credit worthiness of your customer in the factoring company's eyes, and the total volume of business you give to your factoring company.



The first advantage you get in factoring is that your cash flow breaks the credit period span and starts flowing immediately, thereby enabling you to pay your fuel bills, your salaries and even help you in expanding your business. You can now take up more hauling business, which would have been difficult earlier, due to finance constraints holding you back. The second advantage is that most freight factoring companies can take care of your payment receivables, i.e. they will collect the payment on the due date from your customer.

This can enable you to be free from the tension of payment recovery and you can divert your staff to another department. Hence, again you save your time and money. The third advantage is that some factoring companies also offer non-recourse factoring i.e. they take complete responsibility of payments from your customers and in case of non-payment, they will not hold you responsible. This will ensure that you sleep well at night, knowing that you will not be running after late or non paying customers.

You could also apply for a loan from your local bank, but that would require you to submit collateral and various documents such as your previous 3 years profit and loss statements and balance sheets. If you are a startup company, then you will not be able to submit the previous 3 years statements and if you were doing really well, then you would not be requiring a loan. Anyway, even if you do get a loan, you would still have to pay interest on it. So, a freight factoring company can get into action within the least number of days and with the least amount of documentation.

So, in short, a freight factoring company is not only a financial tool, but is more like an extension to your company by helping you increase your cash flow and also taking care of your collection side of your business. It also grows along with your business and in future, the more business you give them could result in even less factoring fees to be paid to them. So, it is a win-win situation for you and hence could make your transport company grow along with your freight factoring company.