Freight Factoring 101: Invoice Factoring vs. Bank Loans

So you need cash flow to keep up with fuel, truck maintenance, insurance, payroll and the many other expenses that trucking companies incur? How about weighing your options before heading to the bank and applying for a traditional line of credit or bank loan?

Let’s take a look at the pros and cons of factoring (also known as freight bill factoring or transportation factoring) versus bank loans:

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Eligibility and Timing

A bank loan will not only take weeks to get approved but, in most cases, the banks will also request that you provide financial statements and tax returns -- just for starters. With factoring, you’ll get approval within 1-3 days and without producing so much documentation. The trucking industry is fast paced, and so are the due date requirements on your bills. In addition, factoring approval is far more focused on your customer’s credit strength, not yours. Bank loan approvals are solely based on credit and background of the business and its owners. 

Cost

Factoring rates will generally be higher than bank interest rates, but have you taken a look at the standard services that are included in the price? Factoring will also give you back office support to assist with credit, invoicing, billing and collections, which saves you from hiring someone to do this job. 
Referrals?

Yes, referrals. Did you know that banks actually recommend factoring to many businesses when they are unable to obtain traditional bank financing? If your business doesn’t meet the bank’s stringent borrowing requirements (too new, poor credit, rapid growth, etc.), the bank will often suggest factoring as an alternate option to bank financing and even help your company make the transition to factoring. 

Have more questions about factoring? Check out our Freight Factoring page by clicking here.