What Documents Do Truck Factoring Companies Need?

Let’s face it – an entrepreneur will only establish a business that has income potential. However, the sad reality is that up to 82% of businesses shut down because of cash flow problems.

Freight carriers, which include trucking companies, are particularly vulnerable to the spending and earning ebbs and flows. External factors can cause inefficiencies in the logistics system, resulting in costly delays. Meanwhile, you must pay your staff and stay on top of maintenance and other operational expenses. Sometimes, you’ll chase after payments for services you’ve already rendered.

This is where truck factoring can help. This alternative funding source turns your unpaid freight bills into instant working capital—keeping your wheels rolling on the road.

If you’re interested in truck factoring but are wondering what documents you need to submit, read on. This guide will outline the typical documents truck factoring companies require to get you approved.

How truck factoring works

Government records show that in 2021, 53.6 million tons of freight worth more than USD$ 54 billion were transported daily in the country. But truckers often wait up to three months before being paid. Unfortunately, operational costs are mounting during these long wait times.  

In factoring, business owners sell their invoices or accounts receivable to third-party providers, go through the validation process, and receive cash almost immediately. It provides a vital cash flow boost to owners facing issues like slow-paying customers, limited cash reserves, and high expansion costs.

Availing of this financing model allows businesses to cover operational costs that don’t stop when cash reserves are low. Before approaching a factoring company for trucking, find out how factoring helps your business thrive and grow and how you can get the best deals when seeking additional operational or capital funds.

A step-by-step guide to truck factoring

For those who’ve never done truck factoring before, here’s a quick rundown of the process:

• A truck company enters into a contract with the factoring company, also known as ‘factor.’
• The trucking company informs their clients about the factoring and requests them to repay the factor directly.
• After hauling a load for a customer, the truck company submits the paperwork to the factoring company instead of sending invoices directly to their clients.
• The ‘factor’ validates the documents, invoices the customer for payment, and then sends the trucking company its advance rate of up to 95% of the load value.
• Once the client pays the ‘factor,’ the latter sends the remaining balance to the trucking company minus their fees, which range from one to six percent of the total invoice.

Before launching an application, research the best truck factoring company with the lowest interest and highest advance rates. Some factors offer convenience with wider services, impeccable customer service, and online account access. Others allow companies to submit multiple invoices at once, allowing you to save on processing charges and other costs.

Truck factoring requirements

Getting approved for freight factoring requires submitting key information about your business and clients. The provider will review your company profile and finances and validate your customers’ repayment capacities.

While documentary submissions vary slightly from factor to factor, prepare the following papers for a smoother experience:

1. Company documents

A ‘factor’ will ask for documents to validate general information related to your trucking business. These normally include:  

• Your company’s full legal name, physical and email address, phone number, and website
• Official documents indicating your business model and structure, like the Articles of Incorporation, Employer Identification Number (EIN), and carrier authority

Having these papers ready is crucial so factoring companies can start with the initial eligibility verification.

2. Proof of business operations

Another essential qualification for freight factoring is sufficient time in business. Some ‘factors’ require truck firms to have been operating continuously for at least one year. Appropriate documentation typically covers:

• Copies of past and latest income tax returns and financial statements
• Invoices from the last six to 12 months that show consistent loads
• Contracts or rate confirmations with shippers and brokers

These papers prove that your company has longevity and ongoing business relationships, signaling that you and your clients are creditworthy.

3. Base customers’ credit information

Unlike loans and other business financing solutions, factoring service providers focus their credit risk evaluation on the truck company’s customers. That’s because the latter are ultimately in charge of repayment. To demonstrate customer relationships, the factoring provider might ask you to submit the following:

• Lists showing your main accounts and payment histories
• Contact details and credit scores of regular shippers or brokers

Having regular customers with strong credit profiles makes approval much easier. Most financial companies consider good credit scores of 670 or higher. Additionally, you can ask some of your clients to issue recommendation letters to show that you mean business.

4. Financial statements

To demonstrate ongoing profitability, a factoring service provider would ask for your financial statements for proof. Get ready to show these:

• Recent balance sheets
• Profit/ loss statements, ideally for the last three years, if applicable
• Financial reports, including in-house profitability metrics
• Business bank account statements
• Accounting software data

Robust finances and consistent revenue generation send positive signals. And while your credit standing isn’t typically a primary concern for most, prepare to explain some credit issues or bankruptcies, if you’ve experienced them.  

5. Equipment documents

You’ll also be asked to submit fleet details, especially if you operate company trucks. Standard requirements are:

• Truck registration papers with matching vehicle identification number (VIN)
• Lease records if the truck isn’t owned
• Equipment maintenance records and mileage reports
• Insurance certificates covering physical damage and liability

Submitting these records improves your overall risk profile because they ensure that your company has sufficient assets for hauling freight.

Additional requirements

Expect additional requirements that might be asked. For instance, some freight factoring companies will ask you to create an account or fill out an online form for pre-evaluation. Additionally, you might be requested to submit driver’s licenses, contracts, and route histories as part of the underwriting process. 

Final thoughts

With the right documents in hand, securing a freight factoring service can be a smooth and straightforward experience. Knowing the details and criteria providers are looking for helps you get the best deals and swift approval, even if it’s your first time. Gather the required paperwork and additional documents, choose a reputable funding partner, and get ready to capitalize on this alternative financing solution.