Summary: Auto haulers frequently have trouble finding a factoring company that can work with them. Unfortunately, many factoring companies cannot finance auto haulers due to the risk of cargo damage, claims, and other issues.
This article explains how freight factoring works, why auto transport companies are challenging to finance, and how to find a factoring company that will help you. We cover the following:
- What is freight bill factoring?
- Factoring problems with auto transport
- How to find the right factoring company
- Factoring costs
- Additional services
- Advantages
- Qualification requirements
1. What is freight bill factoring?
Freight bill factoring helps trucking companies that need working capital. It improves their cash flow by financing invoices from slow-paying shippers and brokers.
Factoring their invoices provides immediate funds to owner-operators and small carriers, which they use to cover expenses. This funding enables them to take on new loads and grow their companies. If you are not familiar with factoring, read “What is Freight Factoring? How Does it Work?“
2. Factoring problems with auto transport
Auto transport companies and car haulers often find it challenging to find a factoring company that can work with them. This difficulty is due to the risk associated with their invoices. Factoring companies’ concerns fall under three areas.
a) Cargo damage
Auto transport companies haul expensive cargo that is susceptible to damage. These invoices have a higher chance of not getting paid, having chargebacks, or other issues.
This combination of issues makes car haulers’ invoices challenging to finance. Unpaid invoices can quickly become a problem for your company and the factor.
b) Difficult cargo
Hauling cars is more complex than hauling general cargo. Trailers have capacity limits based on the configuration and type of vehicle (e.g., sedan vs. SUV) being transported. These limits must be discussed with the client and understood ahead of time.
Vehicles must be prepared appropriately for transport, and the vehicle must be operational. Additionally, vehicles must be properly inspected before they are hauled and when they arrive at the destination.
The complexity of the cargo increases the number of things that can go wrong with a delivery. Ultimately, this complexity affects the car haulers’ ability to invoice and get paid.
c) Invoice quality
Auto haulers typically work with car dealers, freight brokers, and similar companies. Some car dealers and freight brokers have excellent commercial credit. The problem, however, is that many do not have good credit. Unfortunately, those invoices cannot be factored.
3. How to find the right factoring company
There are factoring companies that work with auto-hauling companies. They have adapted their processes to help reduce the perceived risks of the industry.
Finding the right company isn’t difficult. However, it does require some research and diligence.
a) Determine if they factor car haulers
Most factoring companies can work with trucking companies. However, this does not mean they work with auto haulers.
If their website has a page dedicated to factoring for car transportation companies, you can assume they work with them. Otherwise, you need to contact them and ask them questions.
b) Interview companies carefully
Interview the factoring company carefully to determine if they are a good fit for you. Ask them how long they have been in business and if they currently have auto transport companies as clients.
Be careful if they are unfamiliar with the industry or terminology. You need to ensure they understand the industry. Otherwise, you have problems later.
c) Avoid common issues
Most factoring applications are delayed due to issues that can easily be prevented. The three most common application issues are:
- Hard-to-read applications
- Incomplete applications
- Missing requested information
4. Factoring costs
The factoring rate is determined by the size of your business and the credit quality of your customers. Average rates range from 1.5% to 3.5% per 30 days and can be prorated based on how long the invoice is open.
Some factoring companies can offer flat-rate structures to owner-operators with few clients. Larger auto haulers are typically better off with a tiered-rate structure.
5. Additional services
Many factoring companies provide additional services to trucking companies. Fuel advances, load boards, and fuel cards can be useful if you are a new owner-operator or are growing quickly.
a) Fuel advances
Many freight factoring companies offer fuel advances. This provides a small initial advance before the load is delivered. It can be used to cover hauling costs and other expenses. The remainder of the advance, up to your allowed percentage, is provided once the load is delivered.
b) Fuel cards
Factoring companies can deposit advances to your fuel card account. Additionally, several offer fuel card partnerships that help you reduce your fuel costs.
c) Load boards
Some factoring companies also offer access to car-hauling load-board services. While it’s best to work with direct shippers, load boards can be a useful way to reduce deadheading and increase backhauling opportunities.
6. Advantages of factoring
Factoring lines have advantages over other solutions. The three most important advantages include the following:
a) Improves cash flow quickly
The primary purpose of using factoring is to improve cash flow. A factoring program can improve your cash flow quickly and effectively. It provides funds to run your trucking company and take on more loads.
b) Can be deployed quickly
Factoring lines can be deployed quickly, in as little as a few days. They can be very useful if your company has cash flow problems that require quick funding.
c) Lines adapt to your revenues
Lines are designed to be adaptive. The line limits can increase quickly as long as you invoice high-quality shippers and brokers. This feature makes factoring an ideal option for owner-operators and small carriers that are growing quickly.
7. Qualification requirements
Qualifying for freight bill factoring is relatively easy since it’s intended to help small companies. The main requirement is to work with commercial clients who have good credit.
However, that is not the only requirement. Typical qualification criteria include the following:
- Creditworthy commercial clients
- Established carrier (own authority)
- No liens against invoices
- Reliable clients
- No major tax problems
Would you like a factoring quote?
We are a leading freight bill factoring company that works with auto transport companies. We can provide you with high advances at low rates. For more information, get an online quote or call us toll-free at (877) 300 3258.