What is Factoring?
Factoring is a form of financing where the lender, in this case the factoring company purchases your open invoices at a small discount and then collects payment on these invoices. It can be very useful and convenient for some industries, in particular the transportation industry for 2 important reasons: Its not really your credit but that of your customers the determines the eligibility for factoring and, in most cases you won’t have to repay the financing because this is achieved automatically when the factoring company collects on your invoices.
How is Factoring Different from Traditional Financing?
It is important to note though that typically a factoring program is much more than just financing, by partnering with a factoring company you will also enjoy some of the following benefits: you’ll get paid as soon as you deliver a load and you can choose between different payment methods depending on your urgency, the factoring company will typically check the credit of your customers so that neither you nor the factoring company lose money from credit risk, you won’t have to worry about collecting on your invoices as this is usually part of the factoring company’s responsibilities under a well structured factoring program, and you’ll probably have access to a fuel card program among other benefits.
How Much does Factoring Cost?
The cost of factoring is usually presented as a percentage of the invoice amount, this percentage can be fixed, also know as a flat fee or variable based on how long it takes to collect on the invoice, which is usually referred to as a scheduled fee. Also there are programs where you (the client) assume the credit risk which are called recourse factoring and programs where the factoring company assumes the credit risk which are called non-recourse, fees for non-recourse will be higher as the factoring company is incurring a higher risk and might have to put a credit insurance policy in place. Finally there is the issue of reserves, typically factoring companies will hold a small percentage of the invoice amount in reserve until the collection of the invoice.
At Little Mountain Logistics we’ll tailor a factoring program specific to your needs, we’ll answer all your questions and make sure you know exactly how everything works before signing up. Once you’re a client of ours we’ll provide an unparalleled personal service that we’re sure will exceed your highest expectations. Reach out if you have any question or are ready to start, we’re here to help.
