What is Invoice Factoring and How Does it Work?
Invoice factoring is a business solution that puts money into the hands of business owners immediately. Whether you’re a small start-up or an established business, it’s an easy way to increase your immediate cash flow. Most shippers take 30 or more days to pay carriers for delivering loads. A factoring company will pay you on the invoice the same day you submit it for processing. This means you no longer have to wait to pay drivers, buy fuel, or make other important business purchases.
What’s the catch? Well, with factoring companies like InstaPay, we charge a flat 3% factoring fee. This means if your invoice is for $1000, we will keep $30 for taking over the collections process and pay you $970. You will receive this money as long as you send us your invoice by 11am Central Time between Monday and Friday!
Now let’s go over the basic factoring process:
1) Pick a factoring company
When choosing a factoring company, it’s important to consider all the contract terms, fees, and fine print. First things first, find out if the factoring company offers recourse or non-recourse factoring. Non-recourse factoring frees carriers of responsibility if a broker goes bankrupt. Read more differences between recourse and non-recourse factoring here. It’s important to know what you will and will not be responsible if things don’t go as planned.
There are also companies out there who will keep reserves - which is your money “on hold” - until a broker pays. Some will even charge for a same-day ACH transfer to your account, which is basically a hidden fee! You can read more about hidden fees here. It’s important to read all contracts and Terms of Services clearly! Factors like InstaPay do not have contracts or a minimum volume of invoices you have to factor within a time period. In fact, you can read our Terms of Service here. Transparency and honesty is important when picking a factoring partner.
2) Set up your account
Once yo’u’ve picked a factoring company, you’ll go through their sign-up process. InstaPay has no sign-up fees and can approve your account in a day. Sign-up usually requires filling out an application followed by a UCC filing and soft credit check (these do not affect your credit score or business), a notice of assignment, and basic driver’s license/identification info.
Once you’re all done, you’ll have access to an online portal account. You can do many things with this account, but most importantly, before you pick up a load from a broker you can check their credit with us for free! This way you’ll have peace of mind about getting paid by us for the invoice.
2) Invoice your client
Once you’re all set up with a factoring company, you can start factoring loads! Invoice your client for the load you’ve delivered.
3) Send us your invoices
Factors like InstaPay have a handy online portal for all their carriers. If you’re working with us, all you have to do is log on to your online account and click “Submit Invoice.” Scan your invoice and leave any important notes for our team. The clearer the documents, the quicker you’ll get paid! Learn more tips for sending in your invoices here.
4) You get paid
As long as you send us clear, readable documents by 11am CT, you’ll get paid the same day! InstaPay does free ACH transfers to your bank account, too. Other factors don’t do this, so be careful when reading factoring agreements!
5) We handle collections
Since you’ve basically sold you invoice to us, it’s our job to collect the money. A broker or shipper will pay a factoring company directly, and you won’t have to deal with it!
6) In some cases, you get the rest of the advance
InstaPay does not hold any reserves and will give you the full advance when we process your invoice, minus the 3% factoring fee. Other factors, however, might keep reserves until the broker pays them on an invoice. This means some of your money might be “stuck” for 45 days if you work with certain factoring companies.
Still not convinced about factoring your freight bills? Read why more and more transportation companies are turning to factoring here. The benefits and opportunities of immediate cash flow are endless, and InstaPay would love to be your factoring partner.
We pride ourselves on a 3% flat rate, same-day payment, and a transparent agreement. Apply today!