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Today’s post will discuss the relationship between independent truck dispatchers and factoring companies. Before we begin, though, let’s do a quick recap on what factoring is.
Factoring is when a company sells its account receivables to a third party at a discount. Now, let’s look at a simplified example of this. Let’s say you’re a trucking company, and a freight broker owes you two thousand dollars. Unfortunately, you will not get these two thousand dollars for another 30-60 days, but you need money right now for fuel, driver pay, dispatcher fees, etc. So, to get the funds for these needs, you would assign this invoice to a factoring company, which would pay you immediately.
Keep in mind, they will not pay you the entire $2,000. Instead, they will pay you a reduced amount, which for example purposes, may be $1,900. So, you can receive $1,900 today, and the factoring company will collect the entire $2,000 from the shipper 30 to 60 days later.
Who Sells to a Factoring Company?
So then, how do I, as an independent truck dispatcher, get set up with a factoring company? The simple answer to this question is you don’t.
The reason I say that is quite simple. You see, in this type of transaction, a motor carrier transports the freight for a freight broker. That freight broker owes some money to a motor carrier for transportation services. However, if a motor carrier doesn’t want to wait, let’s say, for 30 or 45 days to get paid, they can sell this invoice to a factoring company.
Now, as an independent truck dispatcher, you have not transported anything. Therefore, technically you are not really owed anything for the transportation services, which is why you have nothing to sell to a factoring company. However, what you can do as an independent truck dispatcher is to become a partner of a factoring company.
Your Role with a Factoring Company
As we have discussed in our other post, How Truck Dispatchers Get Paid, as a partner of a factoring company, you can refer your client to them. And in return, the factoring company will deduct your fees from their payout, sending them directly to you. This way, you don’t have to bill your client or charge your client for anything.
You may also get some sort of referral percentage from every load your client factors through this company.
However, outside of this partnership relationship, your role with most factoring companies will be quite simple. It will be an administrative role where you will be one checking credit for the freight brokers you’re about to book a load with.
And secondly, you may be assisting your clients with submitting their invoices to the factoring company. Because they’re on the road, they may not have the time or ability to do so. So, you would put the invoices together and upload them to their factoring company.
Takeaway
So, to summarize, let’s remember that:
1. As an independent truck dispatcher, you are not getting set up with a factoring company.
2. Your interaction with a factoring company will probably be limited to credit checks and invoice submissions.
3. It is a good idea to partner with a factoring company to earn some additional income.
As a matter of fact, in some cases, your factoring company partner may refer some clients to you as well. In some situations, they get a client who is not experienced enough or is just looking for a dispatcher.
© By Roman Shmundyak February 2023
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