How much do freight factoring companies charge?
Freight factoring companies, also known as trucking factoring companies, operate similarly to other factoring companies, and you can expect similar rates and fees. Rates vary by company, but usually start between 1 and 5%, and many freight factoring companies charge a lower rate for invoices that are paid quickly.
Can you work with more than one factoring company?
No. You can only work with one factoring company at a time because it is too difficult to determine who has the first right to your company's outstanding invoices. To establish the first right on your receivables, factoring companies file a UCC lien so they can start collecting your invoices.
Can I switch factoring companies?
Yes. If you switch to a different factoring company but still have outstanding receivables, you must arrange a buyout in which the new factor purchases the remaining invoices. Additionally, the UCC liens must be changed so the new factoring company establishes first right. Switching factoring companies can be an expensive process, especially if you signed a long-term contract with the original company.
What is invoice financing versus factoring?
Many people use the terms invoice financing and invoice factoring interchangeably, but they operate very differently. A factoring company purchases the right to the value of your accounts receivable, whereas with an invoice financing company, you borrow against the value of your accounts receivable, but you still own your invoices.
What is recourse versus non-recourse factoring?
The main difference between recourse and nonrecourse factoring is who is responsible if your customer doesn't pay their invoice. With recourse factoring, you are responsible for your customers' unpaid invoices, though your rates will be lower for the added risk. If you work with a recourse factoring company, make sure your clients have a good credit history.
On the other hand, with nonrecourse factoring, you are not responsible for late or unpaid invoices. Rather, the factoring company accepts the risk, though nonrecourse factoring is more expensive than recourse factoring.
Are factoring companies regulated?
In the United States, invoice factoring companies are not regulated by a formal government body. However, many factors are members of associations that self-regulate their practice, such as the International Factoring Association or the Secured Finance Network (formerly known as the Commercial Finance Association).