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In-House vs. Outsourced Freight Factoring: Evaluating the Right Approach

Freight factoring is a service where the money you’re owed by a client is advanced to you by a factoring company. You get paid now instead of weeks or months later, but you pay a small fee for that cash advance. But, there are other things to consider, and that’s whether in-house or outsourced freight factoring arrangements are best. How do you know which is the right approach?

The Pros and Cons of Doing Things In-House

Some companies hate the idea of pairing with anyone and try to go it alone. Instead of outsourcing their freight factoring, they establish a specific department for that purpose. It’s one way to handle things, but you need to consider:

  • How much time does your staff have?
  • How many extra workers are needed for a new department?
  • Do you have enough business to support the new wages, benefits, etc.?

Avoid Hiring Extra Staff and Increasing Payroll Costs:

If you want to consider this, you need at least one bookkeeper to keep up with invoicing and to know how to shift funds to cover an unpaid invoice until the money comes in weeks or months later. It becomes a game of knowing how to balance things to avoid financial strain. That bookkeeper will need staff to help manage the factoring process, track down unpaid invoices, and continue billing the new loads your drivers complete.

Avoid Paying Factoring Fees:

You have control over all financial matters and do not give up any of your money to processing fees or factoring fees. You also know where things stand as the person handling your invoices is in the office, or you might be the one doing the invoicing. 

Build Solid Relationships With Your Clients:

It’s also much easier to get to know your clients and build solid relationships with them. They’re dealing with your employees and not another company, which may make them happier and it allows you the chance to get to know them and how they operate.

What About the Downfalls of Doing Everything In-House?

While those are the benefits, you also have to think about the costs of this freedom from factoring fees. You have to keep track of invoicing, and that takes time. You’ll need full-time office workers, which means benefits, wages, and office supplies and furnishings. The upfront costs of setting up this in-house factoring department can be high. You also have to hire and train staff, which takes time and energy.

When you’re short on time, it’s harder to grow your business. You can’t network with others, and that’s not good when it comes to growth.

The Pros and Cons of Outsourced Freight Factoring

What about outsourced freight factoring? There are also several benefits to outsourcing freight factoring.

Stop Having to Pay Office Workers

If you’re paying dozens of office workers to handle invoicing and payment processing, the wages, benefits, and office expenses eat into your revenue. A freight factoring arrangement ends this as it’s the factoring company’s responsibility to complete all of these bookkeeping tasks and train and hire employees to help them out.

You don’t have to hire or train additional workers, and they don’t need you to pay their wages. The company you choose for freight factoring takes care of everything. This frees up your time so that you can network, attend meetings and trade shows, hire and train new staff, and grow your business responsibly. It’s a win-win situation.

Avoid Chasing Late Payments and Generating Invoices:

It puts the stress and necessary time spent invoicing clients and chasing payments on the freight factor’s to-do list. You save a lot of time and hassle. Plus, some people don’t like being pushy, and bill collection is not a job for the meek.

Access Helpful Add-On Services:

Freight factoring arrangements often have extra services available. One of them is access to free business credit reports. Being able to check out a customer’s credit history before you agree to haul loads for them is a great way to ensure you partner with responsible brokers and shippers.

Load tracking services help you track where your drivers are in real time and let customers know when they need to have someone at the loading dock. You can also use this information to scan local road alerts and ensure your drivers know of any accidents, construction zones, and weather issues that are delaying traffic.

Are you experiencing slowdowns that have your drivers out of work? Use a find load app to search for loads that they can haul. Fill up a trailer with one or more jobs, earn money throughout the year, and grow your business responsibly and constantly. Don’t worry about working for a stranger as the free business credit check allows you to see if they have a lot of unpaid bills.

When you factor your invoice, you can get paid instantly as long as you submit it by the day’s deadline and have a qualifying card where money can be deposited. If you prefer to use EBT, you’ll still have your money within a couple of days instead of weeks or months. You don’t have to take care of invoicing. Send a picture of your bills of lading to the factoring company, get paid, and download the invoices the company generates to your accounting software. It’s so much simpler.

What About the Downfalls?

Are there downfalls to freight factoring with another company? You do have to pay a fee for the service. Some business owners dislike losing any money to fees. It’s important to look at the rates you’ll be charged and ensure you’re comfortable with them. In the end, you’ll gain more benefits than you’d expect.

Freight factoring is often cheaper in the long run, especially if you’ve been using high-interest credit cards to cover expenses until you get paid. Interest rates on credit cards are reaching the highest levels people have experienced since the 1980s. Freight factoring is going to cost less than relying on credit cards.

Which Is Best?

So, which is best for your trucking firm? It’s a decision only you can make, but you do need to consider your size, how well you’re keeping up with bills, and if you’re able to grow your business. If you struggle with bills month after month because clients keep paying later and later, freight factoring is the best way to grow your company and have cash in hand for your employees and trucks. 

Gather a list of questions and give Saint John Capital a call. Our team is happy to answer them, address how our factoring arrangements help lower stress and grow your business, and help you get started if you choose to factor some or all of your invoices.

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