Can a brand-new trucking authority use freight factoring?

Can a new authority actually use factoring?

Often it can be a first financing product to look at, but it is not guaranteed. The reason is how factoring works. The Comptroller of the Currency's handbook describes factoring as the purchase of receivables, with or without recourse. What is purchased is the invoice, so the provider's main questions are about the invoice and the customer who owes it: Did the freight get delivered? Does the broker or shipper have a record of paying?

That is different from a truck loan, where your own credit and history carry more weight. For how the mechanics run, see our guide to how freight factoring works.

None of that makes an offer automatic. Providers set their own rules, some want a minimum time under your authority, and some decline very small volumes. BreadRoute is not a lender, and a financing request goes to third-party providers who make their own decisions on terms.

What has to be in place before I can factor my first load?

Factoring starts after the work, so you need all of these:

1. Active authority. Your operating authority must be granted. You can check it yourself on FMCSA's Licensing and Insurance site, where the authority history shows the granted date. FMCSA's page says new filings may take 20 to 25 business days or longer. See how long authority takes.
2. Insurance in place. You cannot legally operate without the federal minimum in effect, and brokers will check your coverage before tendering a load. See what insurance a new trucking company needs.
3. A delivered load. The invoice, the rate confirmation, the bill of lading, and proof of delivery.
4. A customer a provider will take. If the broker or shipper is new to the provider or has a poor payment record, the provider may decline that customer's invoices even if it accepts you.
5. A business bank account for the payments. Providers commonly ask for one and for your formation papers or EIN information.

If you are still before your first load and the question is how to pay for startup costs, factoring does not fit yet, because there is no invoice. A different product, such as working capital, may come up, with narrower options for a thin history.

What do factoring providers usually look at for a new authority?

Providers differ, but these are the things that tend to matter:

• Who owes the invoice. The customer's payment record usually matters more than yours.
• How long your authority has been active. Some providers work with brand-new authorities; others want more time. Ask each one.
• Your documents. Clean, complete delivery paperwork on each load.
• Existing liens. Providers search for filings. A lien on your receivables from a prior lender or factor can stop a new one from funding the same invoices. Tell every provider what is already filed.
• Volume. A single truck may not generate the monthly invoice amount a provider's minimum assumes.
• Personal responsibility. Some contracts ask the owner to stand behind certain events, such as a customer's non-payment under recourse. Read what yours says.

These are general practices, not rules. A request lets providers tell you what, if anything, they can do. We cannot tell you what one will say.

What will factoring cost a one-truck operation?

We do not know what a provider will charge you, and we do not publish typical rates. What matters for a one-truck operation is how the pieces add up on a small monthly volume.

Two things can hit a small operation harder than a large one. A minimum monthly volume charges you a fee if your invoices fall short, and one truck can fall short. Flat monthly or add-on fees (wire, ACH, setup) are fixed amounts, so they weigh more when your volume is low.

Here is an example only, with invented numbers, not typical or offered rates. Say a truck invoices $8,000 a month. At a flat 3% fee, the factor fee is $240. Add $60 a month in wire and other fees and the month's cost is $300, or 3.75% of the invoices. The percentage in the sales pitch was 3%. The percentage you paid was higher because the fixed fees were spread across a smaller base.

The calculator below lets you enter your own advance rate, fee, other fees, and how fast your customers pay. It runs only on your numbers.

What should I read before I sign a factoring contract as a new authority?

New authorities are often handed the longest contracts. Look for:

• Term and exit. How long the contract runs, whether it renews automatically, how much notice you must give, and what an early exit costs.
• Spot or contract. Whether you can factor single invoices or are committed to all of them.
• Minimums. The monthly volume required and the fee for missing it.
• Recourse. Who takes the loss if a customer does not pay, and how the contract defines non-payment.
• Fees. Every fee in writing. The FTC's advice to small businesses is to check the net amount you receive after fees against the total you will owe, and to read the contract rather than the advertising, because its examples include claims of "no personal guarantee" that the contract contradicted.
• Money before terms. The FTC says an up-front fee collected before a loan is granted is a cue to walk away. The same caution fits any company that wants money from you before it has issued terms.
• Notice to your customers. Once your customer receives the notice of assignment, it must pay the factor, and paying you no longer clears its debt (UCC 9-406).