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A Guide to the Terminology You’ll Encounter When Factoring Invoices

Freight factoring is a process where you sell your invoices to an invoice factoring company to get paid immediately. Say a broker or shipper owes you $10,000, but you don’t want to wait until the end of the month to get paid. Sign up with a trucking factoring firm, submit your bill of lading, and get paid immediately. No more waiting, no more stress!

When you enter into the realm of invoice factoring, there is terminology you should know. It makes it much easier when it comes to reading a contract and understanding what you’re signing.

Common Truck Factoring Terminology

Account Creditor – That’s you, the owner of the trucking company that’s partnering with a freight factoring company.

Account Debtor – That’s your clients, the brokers, shippers, or companies you haul loads for and to whom you usually submit an invoice.

Accounts Receivable – This is the money that you’re owed. Typically, you’d send an invoice to the account debtor and wait for the payment to arrive by the due date.

Advance – That is the money that’s being paid to you by an invoice factoring company in advance of the account debtor paying an invoice.

Advance Rate/Factoring Advance Rate – This is the percentage of the invoice that’s being paid to you upfront. Some invoice factoring companies may offer a 90% advance, but you might find companies like Saint John Capital that offer 100% advances.

Bad Debt – Bad debt is an invoice that’s overdue and unlikely to get paid. If you signed a recourse agreement, the factor can come back to you for the money that’s owed. If you signed a non-recourse agreement, the factoring company would sell that bad debt to a collections agency.

Bill of Lading (BOL) – This is the agreement that provides information regarding what is being transported by your driver and where it is going.

Carrier – A carrier is a company that provides trucking services, which is usually your trucking firm.

Cash Advance – This is the money you get before delivering a load if you ask to be paid at pick-up rather than when you’ve dropped the load off at its destination.

Client – Your client may be the broker or shipper you’re working with and who asks you to haul a load, but you might deal directly with a store or manufacturer/warehouse.

Credit Terms – When you send an invoice to a client, you have credit terms that dictate how long they have to pay it. You might choose payment on receipt or by the end of the month.

Disapproval – When you submit a bill of lading for payment, the invoice factoring company may deny your request.

Dispute – Disputes occur when the account debtor will not pay an invoice due to a problem they had with the delivery, such as damaged goods.

Factor – This is a shortened term for the freight factoring or invoice factoring company.

Factoring Agreement/Factoring Master Agreement – Working with a factor will start after you’ve looked over a factoring master agreement and signed that you’ve read and understood the terms.

Factoring Rate/Factoring Fee – For a factor to pay you in advance, a fee is charged. It varies from one factoring company to another. Saint John Capital has factoring fees as low as 1%, depending on the size of your fleet.

Flat Fee – Some freight factoring companies’ factoring rates are based on a 30-day period. If the client hasn’t paid in 30 days, subsequent fees kick in. Companies like Saint John Capital use flat fees. They do not penalize you if your client doesn’t pay by the due date or pays on time, but the check takes longer than expected to clear.

Fuel Card – Truck factoring companies offer fuel cards that offer discounted fuel rates when used at participating truck stops and fueling stations. Invoice factoring companies can pay you directly to your fuel card.

Net Terms – Net terms appear on an invoice and are the arrangement regarding how long an account debtor has before the payment is due. It’s usually 30 days, but some trucking companies allow 60 days or want payment upon receipt.

Notice of Assignment/Notification – For your customers to know they must submit payments to the factor, a notice of assignment is submitted providing them with the information they need to submit payments to the correct party.

Proof of Delivery (POD) – After a delivery is made, a POD is supplied as proof the delivery was made.

Recourse/Non-Recourse Factoring – There are three types of invoice factoring. Recourse factoring means that the factoring company can come back to you for repayment if your client doesn’t pay the invoice. Non-recourse arrangements mean the freight factoring company takes the loss. Some arrangements are a mix of the two. Recourse factoring has lower fees, but the risk is higher for you. Non-recourse has higher fees and lower risk.

Reserves – Reserves are the amount withheld from the money you’re owed by the account debtor. If you have a 95% advance rate, the other 5% is the reserve.

Reserve Account – A reserve account is where a small percentage of your factored invoices is deposited. This account is typically used with a recourse factoring arrangement and used as insurance in case the account debtor fails to pay. You won’t run into this with a non-recourse factoring arrangement.

Same-Day Funding – Saint John Capital offers same-day funding if you submit your bill of lading before the deadline. Payment is made the same day to your fuel card.

Set-Up Costs – Set-up costs are the fees charged to set up a new account with an invoice factoring company.

Subsequent Fees – Suppose your client pays the invoice on time, but it takes the bank five days to clear the payment and release funds to the factor. Some factoring companies penalize you for those extra days and charge what are known as subsequent fees because the payment was late.

Uniform Commercial Code (UCC) – This is a standard financial document used when businesses are borrowing or lending money. It helps standardize federal laws regarding commercial transactions.

Verification – It’s the process a factor uses to call the account debtor to verify the bill of lading and amount due are correct and that the account debtor has the correct payment information.

Finding the Best Freight Factoring Arrangement for Your Needs

Once you know the terminology, it’s time to find a factoring company that matches your needs. How do you do this?

  1. Ask what the factoring fees are

Be sure to cover if the company uses recourse or non-recourse arrangements, whether you’d pay subsequent fees, and if you’ll be charged fees by your bank for the bank transfers.

  1. Find out how quickly you’ll be paid

Are same-day payments available or will you have to wait for two, three, four, or more days before you receive the advance?

  1. How do you reach the company for support?

If you have questions or need assistance, how do you reach the freight factoring company’s support team? Do they have a number you can call? Is service specific hours or 24/7? Is there email support or live chat?

  1. Are there additional services?

Additional services can make it easy to run your trucking company. Ask if there are additional services like free business credit checks, load tracking apps, load finding apps, and an app-based system for uploading the bills of lading to get paid faster.

Choosing the right freight invoice factoring specialist makes a big difference when it comes to your bottom line. Saint John Capital has the lowest fees you’ll find, and our additional services can help you run your trucking company efficiently and profitably. Sign up online to get started.

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