Truck Factoring Companies vs. Banks

September 21, 2022

The trucking industry has seen unprecedented growth in 2022. In particular, demand for capacity continues to increase, and companies are earning higher freight rates. Despite the recent development, banks are beginning to protect the amount of their risk exposure and are no longer serving as a source of financial support for most small businesses, making it increasingly difficult for trucking companies to get a loan from the bank.

We’ll discuss more about trucking factoring companies and banks in further detail below.

What is factoring in trucking?

Factoring is a method that helps truckers receive payment faster for their services, while the factoring company deals with invoice payment processing and collection. In exchange for this service, the truck driver or company gives a small percentage of the amount they were owed to the factoring company. Factoring companies also tend to charge additional fees for their services, reducing the amount earned from a load.

How does a factoring company work for truckers?

Factoring is where you sell your load invoice to a company specializing in collecting and processing accounts receivable. Factoring companies tend to pay you the full earnings of your load within a few days. But, in exchange for the service, they collect a percentage of that amount as a fee. After the invoice is out of your hands, you’ll receive your money while the factoring company deals with future invoices.

How the factoring process breaks down

Here’s how the factoring process breaks down:

  1. A truck driver transports the load for a customer, makes a delivery, and receives an invoice.
  2. The truck driver sends the invoice to the factoring company.
  3. The factoring company advances a percentage of the invoice’s value to the driver within a few days of receiving it.
  4. The factoring company takes care of the billing process and collects money on behalf of the truck driver.

Why do trucking companies work with factoring companies?

Trucking companies use factoring because it gives them better access to their cash flow versus waiting several months. The small percentage of load value that they must pay is small compared to maintenance, fuel, and other business-related costs.

What trucking companies should know about banks

If you own a trucking company, you should be mindful of the amount you owe to the banks and pay particular attention to loan covenants. A loan covenant is a list of requirements a borrower must uphold during a loan. If you violate the loan covenant, the bank will pull its funding and call in the loan. Trucking companies that fall behind on loan payments can have their loan terminated with little to no notice. Having alternate funding ready when a bank acts against your loan is always a good idea.

If you are a small to medium-size trucking company, you may be unable to turn to banks for a loan.

BP Financing is a trucking factoring company improving cash flow for trucking companies.

We partner with small to mid-sized businesses to eliminate the stress between when they perform work and when they get paid. BP Financing established its customer base in the trucking industry. Now, we work with companies in diverse sectors to help them scale their business with the security of reliable cash flow. Factoring isn’t like other financing products, and we operate as a partner to our clients by providing predictable payments. Always know when you’re going to get paid by working with us.

Discover a new way to operate your trucking business with a factoring company.

Truck driving on the road