Freight factoring or trucking factoring services convert your invoices to cash. Owners, trucking companies and operators immediately get payment for loads that have already been delivered. You have access to money within 24 hours of delivery by selling your invoices to a factor. There is no waiting period on brokers and shippers that pay slowly.
TERMS EVERY NEWCOMER SHOULD KNOW ABOUT FREIGHT FACTORING
There is a long list of phrases, acronyms, and jargon in the transportation industry. It doesn’t matter if you have been in the industry for days or years, there is a lot to learn and understand. Some terms are important in freight factoring for beginners to understand. Here is a list of basic phrases in the freight factoring industry that every newcomer should be aware of.
FREIGHT FACTORING – freight factoring is when a transporter sells the invoice for a load they have delivered to get cash quickly, this saves the wait. The factoring company would deduct a percentage of the invoice as a fee. Factoring is one of the easiest ways that help trucking companies improve their cash-flow.
ACCOUNTS RECEIVABLES – it is the amount that is owed to the company which results from the services and goods provided by the company. This is the money that your customers owe you or your company.
OPERATING AUTHORITY – operating authority means the federal motor carrier safety administration (FMCSA) allows you to transport freight as a motor carrier. It allows professional drivers to pull particular load types to several delivery destinations.
Also Read: Pros & Cons of Freight Factoring
BILL OF LADING (BOL) – BOL is a legal document that is issued to a shipper by a carrier. It includes details of the amount, variety, and destination of goods being carried. When the carrier delivers the products at a chosen destination, the BOL is used as a shipment receipt.
CASH FLOW – cash flow is the amount that decreases or increases in a business or an organization. it is the amount of currency and cash that is consumed or produced in a given period time. It is the total amount of money coming in and going out in your business from costing and income. For a trucking company to grow and develop a positive cash-flow is required.
CONCENTRATION – this is the percentage a factor will fund a single client in your profile. This helps to ensure that a single customer or report does not represent the big range of your portfolio.
FACTORING – factoring is a system of financing in which a business sells its accounts receivable at a discount to a third party. To meet immediate cash needs and have a positive cash-flow, a business factors its receivable assets. This is also called as receivables financing, invoice discounting, invoice factoring or freight bill factoring
FEDERAL MOTOR CARRIER SAFETY ADMINISTRATION (FMCSA) – it is a firm in the U.S. Department of transportation that controls and manages the trucking industry in the United States. FMCSA’s main focus is to reduce injuries, crashes and fatalities that involve large buses and trucks. It is responsible for providing and regulating motor vehicle safety regulations.
NON-RECOURSE FACTORING – Non-recourse factoring lets a company sell their invoices to a factor without the obligation of any unpaid invoices. If the clients extend on their payments or there is a late payment, any risk will be taken up by the factor. The factoring company will be claiming any risks if a client fails to pay their bills. This way the business will be unharmed.
RECOURSE FACTORING – the trucking company holds on to the liability for the final collection of the factored invoice with recourse factoring. There is less of a threat to the factor and the credit risk is of the customer. This is why recourse factoring is often available at a discounted cost.
NET TERMS – net terms are normally between 30 to 60 days after the delivery. It is a system in which the payment is expected or due within a particular amount of time.
RATE SHEET/RATE CONFIRMATION – this is an agreement between the shipper and the carrier which is legally binding. A rate confirmation should be provided by the broker for the carrier to sign before moving forward. The rate confirmation part must be included in a separate sheet or must be included in the tender form.
UNIFORM COMMERCIAL CODE (UCC) – UCC is one of many uniform acts that have been set up to harmonize and govern the laws of commercial transactions and other sales. UCC laws are established to manage sales of business transactions and other personal property. Transactions like leasing vehicles or equipment, borrowing money, selling products, setting up contracts are all covered by the UCC.
WORKING CAPITAL – it is a financial metric that represents the liquid cash available in a business. Working capital is like a part of operating capital, along with assets like equipment and plant. Positive working capital is needed to ensure that a business or a firm can deal with its operations and has enough funds for debts and expenses.
PROOF OF DELIVERY (POD) – it is a method through which one can find out that the recipient received the contents or goods sent by the sender. It is like a receipt.
DEBTOR – debtor is an institution or a person that owes a debt or money to another person or institution. The debtor is often known as a borrower if the counterpart of this debt arrangement is a bank.
FREIGHT BROKER – a freight broker can be a company or a person that matches transportation services with shippers to transport goods. They are responsible to match reliable and authorized transportation carriers to shippers. They also help coordinate all of the shipping needs of various companies.
SHIPPER – shipper is an individual or a company who is usually the owner or supplier of shipment of commodities.
CARRIER – carrier is an individual or company that transports goods for any company or person to the destination. They are responsible for any possible loss of the products during transport.
It is very important to understand these freight factoring terms properly to have proper knowledge about freight factoring.