Factoring Terminology : Vital Jargons You Should Understand About Factoring
Introduction
As a trucker, navigating the landscape of broker engagement can often feel overwhelming. Complex terms and conditions can lead to misunderstandings, unexpected costs, and rigid agreements that stifle your business's growth. Many truckers find themselves locked into contracts that are not only difficult to comprehend but also costly in the long run. We are also written about reasons to factor for a trucking company.
Imagine submitting an invoice only to discover hidden fees or penalties that significantly reduce your earnings. Or worse, you might face a situation where a broker fails to pay, leaving you with no recourse to recover your losses. These scenarios can create significant stress and financial strain, making it essential for truckers to understand the intricacies of their contracts before signing on the dotted line.
This article talks about vital truck factoring terminology.
This article aims to demystify the various terms and conditions associated with broker contracts, particularly focusing on factoring agreements. By breaking down key terminologies and concepts, we will equip you with the knowledge needed to make informed decisions. With a clearer understanding of these contracts, you can choose agreements that are simple, straightforward, and ultimately beneficial for your trucking business. Let’s explore the critical aspects of factoring contracts that every trucker should know!
Below are the trucking factoring terminologies that you come across in a factoring engagement. This can help you evaluate a factor completely or comprehensively.
| Type of Factoring | Recourse means if the customer/freight broker fails to pay the trucking invoice within the prescribed time, the carrier or trucker’s account is debited. There is guarantee of payment in recourse factoring..
Non-recourse means the trucking company will be paid the in+voice amount even if the broker/customer fails to pay the invoice amount within the payment period, this guaranteed payment covers the insolvency risk of brokers/customers. |
| Rate | Factoring rate falls between 2.25% to 3.5%. This amount is cut by the factoring company as the service charge. |
| Daily Cutoff Timing | Cut off timings is the time before which if submit your invoice you will get invoice paid on the same day., if you are paying after the cutoff time it is processed the next working day. |
| How to submit paperwork
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You can easily submit the BOL and rate com via an email. Plus you can take photos of the documents and upload them using the factor’s mobile app. You can also upload the BOL and rate con using factor’s website |
| Reserve | Reserve is an amount debited from the truckers account. Which would be paid back to you after the broker pays you invoice within the payment time limit. For example you have submitted a $1000 invoice and the factor, this invoice will be paid after cutting 30 dollars as a factoring fee, the factor will also keep a reserve of $100, this reserve will be given back after factor gets trucking invoice payment. |
| Chargeback Days | Chargeback days are for recourse factoring. Typically if the broker doen’t pay you in 45 to 60 days, the factor will take back the amount credited to the customer’s/trucker’s account. |
| Contract | There are long-term and short-term contracts, There are factoring companies with 1 on 1 contract for 1 month. There are factoring companies with 1-day easy release contracts.
1 year contracts are rigid and it locks your company , it might also have a termination fee for early release. |
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Duration/Notice |
This means how many months notice period should you give notice period to leave factoring contract. Is it a daily or month on month or 6 months or yearly contract? |
| Period/Termination Fee | Say you have a yearly or monthly factoring contract and you don’t like the factor’s business style. You can exit the contract by paying a hefty termination fee. Charges may go upto $5000 |
| ACH and Wire | ACH is a payment method that helps truckers get a factoring amount instantly to your account. Wire will allow you to get payments within an hour.
ACH charges are $1 to $5,ACH credit amount in 24 hours. Wire instantly or within one hour fee is $25. |
| Card | Many trucker have collaborated with many fin-tech companies or banks. These cards can have multiple use cases like it can be like a debit card, or it can be a fuel card.and essential shopping card. The money credited to your credit doesn't have a charge but money transfer, withdrawal or shopping invites small charges. Also the card provides discounts on tires, spare parts, fuel discounts and rebates on purchases, rewards and cash backs on purchases. |
| Minimum Monthly | Some factoring companies say that drivers or truckers should factor a minimum amount of invoices. Otherwise you would be charged a fine or penalty.
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| Total Invoices
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Some factoring companies say that drivers or truckers should factor an all the invoices with the factoring company . Otherwise, you would have a fine or penalty.
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| Minimum Monthly | Also factor’s ask trucker to pay minimum amount factoring fee, that means every invoice that you submit should be of $500, if it is not
You will have to pay minimum fine of $30 or maximum invoice charges which every is greater. . |
| Fine | The factor can impose a fine or termination fee if a customer/ trucker exits a factoring contract before the due date. |
| Value/Factoring Fee | Example: A trucker is submitting an invoice of $1000 and the fee for factoring is 3.0% then the amount of factoring fee amounts to $30. |
| Escrow | Escrow means an amount that you leave with the trucking company, it's a contingency reserve. Many factors take the escrow as a lump sum, ew others take it from the first few invoices from your first few invoices say for example $500 |
| Fuel Card
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A fuel card means you get a card that’s paid up by the factoring company from your trucking invoice. This card can be used to get discounts on diesel say for example 50 cents per gallon. Fuel cards can be used to pay tire charges, oil changes, engine and truck upkeep, and essential shopping for drivers.
Fuel card comes in 2 variations postpaid and prepaid, postpaid means you get a $2000 to $2500 credit limit every week, and you need to clear it weekly from your invoices. |
| Fuel Card Charges | When fuel cards are used outside its network, fuel card companies will charge you a fee that is a fuel card charge. |
| Fuel Advance
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A fuel advance is a way for trucking companies to get funds to cover fuel and other expenses, typically offered by factoring companies as an add-on to their freight bill factoring programs. Fuel advance is apportioned from your bill of lading, by sending it to your factor you can get an advance up to 50% of the rate con.
Fuel advances are often used by small and growing trucking companies to help them take on more loads and grow. Companies can access the funds when they pick up a load.
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| Fuel Advance Fee | A “fuel advance fee” in trucking refers to a small percentage charge that a factoring company deducts from a truck driver or trucking company when they receive a fuel advance |
| PPW processing fee | A typical “paperwork processing fee” for truck factoring, also called an administrative fee, usually ranges between 0.5% and 2.5% of the invoice value, depending on the factoring company and your specific contract; this fee covers the costs associated with processing and managing your invoices. |
| Credit check fee | This is a fee to look up the credit rating of your customer or broker. Factors will only take customers/ shippers or brokers with top-notch current credit ratings. This saves the customer from the stress of non-payment of invoices if it is to occur. |
| Setup fee
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Setup fee is a charge levied by a broker to start the business of load hauling. A trucker/operator needs to set up documents to onboard a carrier or trucker. This is a one-time fee for setting up carrier packets. |
| Buy Out
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Your new factoring company can buy out your invoices factored at once, from your current factor. You can get this service with a buyout charge. This is done to get a favorable contract from the new factor. |
| Notice Period | Some factoring companies ask truckers to provide notice of 1 month for exiting the contract with your company. You need to check for a company without notice period, or 1 day notice. This is beneficial and flexible for your trucking company. |
Conclusion
Navigating the complexities of broker contracts and factoring agreements is crucial for truckers seeking to optimize their operations and financial stability. By familiarizing yourself with the key terms and conditions outlined in this article, you can make informed decisions that align with your business goals. Understanding the differences between recourse and non-recourse factoring, the implications of various fees, and the importance of contract flexibility will empower you to choose a factoring company that best suits your needs. Your trucking establishment can become efficent by learning FAQ's about truck factoring.
Moreover, being aware of submission processes, payment methods, and potential penalties will help you avoid unexpected costs and ensure a smoother cash flow. As you engage with brokers and factoring companies, remember that clarity and transparency in these agreements are essential for fostering a successful partnership. By taking the time to read and comprehend your contracts thoroughly, you can secure a more favorable arrangement that supports your trucking business's growth and sustainability.
