Freight factoring can be a somewhat nebulous concept for freight brokers. Fear of the unknown can cause some to dismiss the subject altogether. But taking the time to understand factoring and finding a partner that will help make the process easier can combine to make a world of difference on the financial side of things. Simply put, factoring lets brokers receive a much faster payment for their services with the factoring company paying them right away and then handling invoice payment processing and collection. The broker gives up a small percentage of the invoice payment to the factoring company as compensation. Let’s take a look at some misconceptions as well as the many benefits of factoring.
Why Factoring Sometimes Gets a Bad Rap
As mentioned already, freight factoring can be a little complicated and sometimes there are concerns that can impact its image:
- Chargebacks: If the factoring company cannot collect payment on the invoice from a client in a reasonable amount of time, the factoring company will request the advance back and will hand the invoice back to the freight broker. This is what is known as a chargeback. The broker will then have to contact the client and request payment for the invoice. Chargebacks can happen for a variety of reasons — defective products being delivered, client disputes, and invoices that are just too old. A reliable factoring company will keep the broker updated throughout the process of each invoice. When something seems wrong, they’ll communicate their concerns and will work to avoid chargebacks.
- Hidden fees: Some factoring companies will add different fees, such as application fees, credit check fees, processing fees for each invoice that is financed, or late fees if a client is past due on a payment. Brokers must stay aware of these types of fees when working out a contract with a factoring company.
- Poor invoicing etiquette: Handling invoices needs to be a priority, but some companies fall short on everything from leaving out key details on the invoice to simply forgetting to send the invoice to not following up in a timely manner when confirming the invoice has been received. There are plenty of ways the ball can be dropped and the broker can be on the hook for the payment.
How Factoring Can be a Supercharging Benefit to a Broker
The clear reason why freight brokers use factoring companies is that the quick turnover in payment after completing a shipment means immediate cash flow to help cover expenses. But there are more benefits to using a freight factoring company:
- Factoring services can help brokers monitor the credit risks of a shipper and help them realize when the risk is too great to accept a deal.
- A lot of the facets of freight payment management can be time-consuming. Having the right factoring company handle concerns like tracking down vendors for payments or waiting months for invoices to clear frees up a significant amount of time for a broker to focus on other tasks.
- Budgeting and financial planning can be improved with the help of a good factoring company because they offer customized insights and data tracking that can point out issues and concerns within payment models.
- Factoring service providers can help more effectively track financial health in both the short and long term. They can more easily monitor performance across multiple platforms and more efficiently coordinate loads and drivers, which means increased profits along with reduced fees and expenses.
- The days of mountains of paperwork involving payment processing, logistics, and tracking documents are a thing of the past. With invoice factoring processes being shifted online, information — bills of lading, PODs, receipts, and actual invoices — can be recorded and shared faster.
Benefits of Getting Carriers Paid Digitally and Faster
The freight market continues to grow significantly. So does the competition for acquiring more clients as shippers or carriers. To stay on top of that aggressive market, it’s more important than ever to provide quality service and to do it as quickly as possible. Here are a couple of ways that can help you stand out from the other freight brokers:
- With an exemplary reputation for shipping goods and providing the best customer service, you can become a “freight broker of choice.” With expertise in the field, this type of broker is often the first choice of those looking to ship cargo. The benefits of being a preferred broker of choice include being able to charge higher rates because clients know that you can get them the best service, getting more market exposure, increasing credibility that can attract new business more efficiently, having more negotiating power, and faster turnaround times during a time when meeting deadlines becomes even more important. With that new business, you’ll likely have concerns over cash flow while waiting for weeks for payments from your clients, which can disrupt your business operations. Partnering with a freight factoring service can help solve those cash flow problems with payments that are made digitally. With immediate payments from the factoring service, you have money to quickly turn around and put into the next job.
- Another benefit of switching to a freight factoring service that uses digital payments is the enhanced payment and reconciliation process. Paper-based types of payment are replaced by a much faster digital process. Check codes no longer need to be confirmed, calls in the wee hours are obsolete, and drivers don’t have to wait around to get the payment processed. The process is not only fast, but the transactions all have a digital trail and make the transfer more secure. Lumper receipts are automatically created for the driver, broker, and shipper so that reconciliation is swift.
- It also lets you take care of the carriers better. By ensuring the rapid turnover of payment, carriers can quickly put that money back into the next job and will realize the new digital service benefits them as well. That in turn raises customer satisfaction, nurtures mutual business loyalty, and can solidify a strong long-term relationship.
The Key Benefits of HaulPay
Using the factoring and payments of ComFreight’s HaulPay, you can leap into the digital age by replacing manual payments and old-school factoring with a better way to pay and get paid. With HaulPay, payments arrive within one day, digital processing comes without hidden fees or extra interest costs, and you can check credit on any customer for free while automating your invoicing with free software or TMS integrations. Here are some key benefits of HaulPay:
- Non-recourse factoring with no minimums, low or no reserve, and the best flat-rate pricing options. This also means a big reduction in your credit risk.
- Optional advances of your own broker margin on a load-to-load basis when you want it to accelerate your cash flow on demand.
- Turn your carrier payables into working capital by having HaulPay pay the carrier at a scheduled time, either with quick pay or on a specific future date the carrier wants.
- Flexible self-finance so you can use your own funds when you need to.
- Establish good credit or improve your credit score by always paying fast.
- The ability to decide how much you want HaulPay involved in your invoicing processes. For instance, you can choose which of your customers and invoices you want to process.
- Free software to check customer credit approval and add new customers in real-time.
- Eliminate carrier payment fraud with HaulPay’s carrier setup process and growing network of vetted carriers that you can connect to.
- Leverage HaulPay’s carrier setup process to automate dealing with your carriers’ factoring companies saving even more time on your payables.
- Scale faster with more of your back office automated at no additional cost to you.
HaulPay Helps Pave the Way
After taking a deeper look at freight factoring and its many benefits, you can see why the right broker-focused factoring solution can be a part of your future and success. It’s also evident that getting around in this complex world of freight factoring can be much easier with a partner. ComFreight’s HaulPay can help you leave the old-school world of paperwork and manual payments for an automated system that includes flexible low-cost factoring options. Come take a look at the new wave of freight brokering benefits with a demonstration on our website.
Provided By: Steve Kochan, Founder & CEO, ComFreight HaulPay