Why Factor How Does It Work? Why Use FreighCash? Does My Company Qualify? Factoring Terminology Apply Now

How Does Freight Factoring Work?

Your company will bill your customers in the usual way, along with sending a copy of the invoices to the factoring company. The freight factoring company will then advance your business up to 95% of the face amount of the invoices. The factoring company then takes the responsibility for collecting payment from your customers.

Once the factoring company is paid on the invoices, they will release to your company the reserved amount of the invoice, i.e. (15%), minus the appropriate financing fee for advancing the cash.

The financing fee is based not on the strength of your company but rather on the quality of your accounts. The cost fluctuates according to the creditworthiness and performance of your receivables. The fees can be as low as 1/2% of the invoice amount, depending on the level of risk involved.

The funding time for your initial factoring transaction is usually 5 to 7 days. Once your account has been set up, cash can be advanced on your invoices and can be wire transferred to your bank account anywhere in the country within 24 hours.

When you factor, you do not incur any debt, and there are no monthly payments. You control your cash flow by determining how much to factor, and when.

When compared to the cost of maintaining receivables for 30 days or more, and the administrative expense associated with collections, factoring is a wise alternative to traditional financing from banks.

Here's an Example:
Face amount of Client's invoice
Average discount earned by Factor (2%) $2,000
Reserve Fund held for security $20,000
Cash Advanced to client from Factor $80,000
Customers Payment Received by Factor $100,000
Reserve Fund Refund Paid to Client less fee $18,000
Cash proceeds Retained by Factor (fee)
(Fee is deducted from reserve)

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