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What is freight factoring?
Freight factoring takes the invoices for the loads that you run and allows you to get paid on them now instead of having to wait 30, 60 or 90 days by the broker for a small fee . BridgeHaul will bridge the gap between the driver and the broker.
How much do factoring companies charge?
Factoring companies charge customers (client) a discount fee, also known as a percentage fee, on the dollar amount of the invoice factored. A customer’s percentage rate is determined using a variety of variables—including services offered, program type, and monthly factoring volume. Factoring rates range from <1% to 4%, depending on the carrier’s business.
What is a reserve?
Reserves are funds held (a percentage of the invoice factored) from each invoice to offset the risk of non-payment by a broker or shipper (also known as the “debtor”). When the broker pays the invoice, the reserve amount held is released to the carrier. If an invoice does not pay, the reserve account is used to cover the total invoice amount. Reserves are a common practice in factoring programs.
What is Non-Recourse Factoring?
Non-recourse factoring refers to factoring programs in which the factoring company (BridgeHaul) purchases an invoice from the customer (client). Once the invoice is purchased, the factoring company is responsible for collecting payment indefinitely, absorbing the risk from the carrier.
What is Recourse Factoring?
Recourse factoring refers to factoring programs where the carrier takes on the risk of unpaid invoices after a certain period of time. Recourse programs are preferred by larger carriers who can assume that risk and work with potentially more risky customers. Invoices factored under a recourse program are usually charged back to the carrier 60-90 days from initial funding.
What is the difference between recourse and non-recourse factoring?
Recourse and non-recourse factoring refer to the entity that inherits the risk of factoring invoices (after a period of time).
Under a recourse program, the carrier is ultimately liable to repurchase the invoice if the factoring company cannot collect payment after a certain period of time.
Under a non-recourse program, the factoring company is responsible and is liable for any defaults of payment from the broker, assuming the carrier met the obligations within their contract.
Which program is best for my company?
Non-recourse programs are designed for new and existing carriers in the small to mid-size range. Recourse programs are designed for larger carriers with more dynamic customer profiles and operational needs.
How much should I expect to be funded when I factor?
Depending on the factor and program type, funding rates can be anywhere between 90% and 99% of the invoice amount. This is determined by your individual contract terms. Be sure to know exactly what your factoring rate is, any additional fees, or extra stipulations that may incur additional charges. The lowest rate is not usually the best, especially when you take into account hidden fees, terms affecting non-payment liability, and ability to receive customer support as you run your business.
What are the different types of factoring rates?
Factoring companies generally offer either a flat factoring rate or a tiered rate. Flat factoring rates charge the same percentage on each invoice factored, regardless of how long it takes the broker to pay. Tiered rate programs increase the fee depending on the time it takes for a broker to pay, usually in 15-day increments.
Why use factoring instead of quick pay?
Quick pay is an expedited funding option offered by some brokers, each with their own terms and rates. As you diversify your business and utilize multiple brokers, the management of all the different contracts, terms, and paperwork grows exponentially. The benefit of factoring is that you have an organized and centralized source for all back-office-related needs. Factoring companies handle the back-office burden while you focus on running your business.
How much are you really paying for factoring?
Your effective rate is inclusive of your factoring rate plus any additional fees that may be in your contract for each transaction. Additional fees may be related to transfer fees, service fees, or fees related to invoice minimums. For example, you may have a 2.5% factoring rate, but your total “effective” rate is 4% when you add in all the other fees.
What is a Notice of Assignment (“NOA”)?
A notice of assignment is a legal document that notifies customers of a factoring relationship. The document informs the customer that account receivables have been re-assigned and future payments should be made payable to the factoring company.
What is a Letter of Release (“LOR”)?
A letter of release is a legal document provided to customers that releases the factoring company’s Notice of Assignment (NOA) and assigns account receivables back to the carrier.