Transitioning your freight brokerage to a new freight factoring company is easier than it seems. The freight factoring buyout is a process that allows freight brokers to switch their factoring company to one that better fits your needs. Switch to a better factoring company and say goodbye to poor customer service, high fees, late payments, or other challenges with your current factor.
Freight brokerages work with a freight broker factoring company to improve its cash flow and maintain its operations. As a freight brokerage, you may face long payment terms from your shippers, leading to cash flow problems and hindering your ability to grow your business. A freight factoring service can help alleviate cash flow challenges by purchasing your unpaid invoices and providing immediate cash advances.
It’s important to remember not all freight factoring companies are the same. Brokers may have problems with their current factoring company, such as high fees, slow payments, and poor customer service. Any of these issues can damage your brokerage reputation and your business. Don’t let a lousy factoring company drive your business off track - it’s time to steer your brokerage in a better direction.
Why Switch Freight Factoring Companies in 2024?
We are currently experiencing one of the worst freight recessions in history, as volumes decreased by 15% in Q4 of 2023. This means that trucking companies need to evaluate their costs for efficiency, as an increase in demand is not expected anytime soon.
If you're considering switching your freight factoring company, it's important to do so carefully. It's a bit like switching banks - it can be daunting, but it can pay off if done correctly.
Factoring companies work with both clients and carriers, so any mistakes they make can reflect poorly on a broker's reputation. To avoid such issues, brokers should take the time to research and find the right partner. This way, they can focus on growing their business and building strong relationships with their clients and carriers.
Remember, your factor is a core business component, so it's worth taking the time to find the best fit for your needs. When switching to a new factoring company, consider the following potential components.
Negotiate Better Rates and Terms
One of the primary reasons to switch your freight factoring service is to get better rates and terms.
Freight factoring companies negotiate rates based on volume and average days to pay. If your brokerage has increased volume, it’s time to re-evaluate and shop around for new rates. A lower factoring rate translates into better margins, which is especially important during a freight recession. Every dollar counts.
It's essential to remember that while comparing rates is smart, paying attention to the fine print and being aware of hidden costs is equally important. You want to avoid being surprised by wire transfer fees, collection fees, credit check fees, or any other unexpected expenses. While factoring companies can charge for additional services, ensuring transparency is crucial. A reputable factoring company should always disclose all potential charges upfront. However, it's ultimately up to you to carefully read the contract before signing. If you're switching factoring companies because of cost, compare similar services and uncover hidden fees.
Additionally, some factoring companies have limiting contract terms like volume minimums, which can be detrimental during market swings. By switching companies, you can find a provider with more favorable terms that align with your business needs.
Improved Customer Service
Fast and responsive customer service can be the difference between paying your carriers on time or winning a lane.
As a freight brokerage, you should expect attentive, responsive, and expert help whenever you have issues, questions, or concerns. Your carriers and customers should also receive excellent treatment from the factoring company. When the factoring company collects funds from your client, the service should be exceptional - consistently professional and reliable.
Suppose your current freight factoring company is slow to respond, unknowledgeable, or
fails to fund your invoices within the agreed-upon time frame. In that case, it’s time to consider switching to a factoring company that values your business. A factoring company should treat you and your customers with patience, respect, and eagerness to go the extra mile to meet your needs.
Intuitive platform and advanced technology
Your freight factoring platform should not look like a 2000s website. User experience has come a long way since web 1.0; your factoring dashboards should reflect that.
Freight brokerages are embracing freight technology in droves as more software companies have come to the market with intuitive and responsive platforms. The software you choose should have a sleek, clean, and easy-to-use interface that enables employees like Glenda in accounting to find what they need quickly. A well-designed platform will make Glenda a happier employee and free up her time to research new business opportunities.
Tech-forward factoring pairs financing with back-office automation to save brokerages time and headaches. Automation features like bulk uploads or two-way integrations with your TMS make invoices, payments, and recollections as easy as one click.
Strategic Alignment with your Business Goals
You want a factoring company that will scale with your business. Ideally, you want to switch factoring companies sparingly, as it could hurt your credit score and reputation. So finding a freight broker factor that will support your continued growth is paramount.
Shay Lynn Dixon of Scale Logistics chose to factor with Denim because she “knew the ‘old-school’ way of factoring wouldn’t work for her as a tech-savvy business owner.”
You can build a more substantial, sustainable business for years by partnering with a factoring company that shares your values.
Preparing for the switch
Switching to a new factoring company can seem daunting, but it can be a smooth process with careful preparation.
Start by reviewing your current contract with your existing factoring company. Take note of any cancellation fees, contract end dates, and terms. Ensure you have all the necessary documents, including an aging report and a copy of your contract. This preparation will help you avoid any surprises or delays later on.
Next, identify the best factoring company. Do your research, read freight factoring company reviews on sites like Trustpilot, ask questions about their business, and ask for recommendations from other brokers. Request a demo of the software to get a feel for how it works and ensure it meets your and your team's needs.
By taking the time to prepare and do your research, you can switch to a new factoring company with confidence and set your brokerage up for success.
Steps to Switching Your Factoring Company
Good news: Deciding to switch is the hardest part of the process for you. The two freight factoring companies handle most of the buyout process. Your freight brokerage is only responsible for three easy steps:
- Notify the existing factoring company of your intention to cancel the contract and end date. Don't wait - often, there are 30 to 60-day notification periods. Cancellation must be in writing, typically over email.
- Log in to your current factoring company’s dashboard and pull the aging report. The aging report should show all outstanding invoices and status. Your new factoring company will use this aging report to vet your eligibility for a buyout and initiate the buyout.
- Fill out your application for the new factoring company.
Kick up your feet and take a deep breath.
Buyout Process with Denim
At Denim, we want to make the buyout process as easy as possible for our clients. We will handle most communication and coordination with your current factoring company.The Denim team will provide daily updates on the progress, so there are no surprises or unanswered questions.
After you've notified your old factoring company and agreed on a buyout date, Denim will go to work for you.
The steps Denim takes to complete a buyout:
- Denim will contact your existing factor to verify their UCC filing and request an initial aging report.
A Uniform Commercial Code (UCC) filing is a legal notice that a creditor files to notify other parties that it has a security interest in a particular asset, such as accounts receivable. Factors take the first position to protect their investment. Denim needs to verify the UCC filing to ensure no outstanding liens or claims against your accounts receivable.
Denim will request an aging report directly from your factoring company to verify the aging report originally provided in the sales process.
- Denim’s operations team will contact your shippers and verify the balance of every open invoice.
Contacting your shippers is vital to ensure a smooth transition to Denim. This step helps expedite the payment process and ensure you receive the funds you owe on time.
- Request the final aging report from the existing factor and request the buyout agreement.
We will request the final aging report to ensure your brokerage added no additional loads to the account receivable. A final aging report is necessary for both Denim and you. It helps avoid any discrepancies or disputes that arise after the factoring buyout.
The buyout agreement is a legal document that outlines the terms of the factoring buyout, including the purchase price and any other relevant terms. This process can take up to a week.
- All three parties will sign the buyout agreement.
The previous factors will initiate the buyout agreement because they are the party selling the accounts receivable. All three parties will sign the deal, including you, Denim, and your current factor. It is essential to review the buyout agreement carefully and understand all the terms before signing.
- Denim will prep and send the wire to purchase all the open invoices and verify receipt
Once everything is verified, Denim will prepare and send the wire to purchase all the open invoices. Denim will verify the old factoring company received the wire.
- Send a letter of release to replace UCC filing and assign Denim first position.
The previous factor will send a release letter and permit Denim to terminate their UCC filing. Denim will then file a UCC-1 financing statement to take the first position. This step completes the buyout.
- Welcome party!
Denim will introduce you to your new account manager and onboarding crew. This group will help step up your account with any integrations and give you a demo of your dashboard.
Denim Makes Switching Factoring Companies Easy
Switching factoring companies is smart for freight brokers with increased volume or looking for a better experience. But finding the right partner can be a challenge - after all, factors play a crucial role in interacting with clients and carriers, and any mistakes can have serious consequences for a broker's business.
That's where Denim comes in. Our tech-forward factoring lets brokers enjoy smart automation tools and flexible factoring options without hidden fees or limiting contract terms. We offer some of the industry's lowest rates and the fastest turnaround on approvals, so you can keep your business running without any bumps in the road.
Don't just take our word for it. Read how Yeti Logistics switched to Denim in just 3 days and saved nearly $20,000 in factoring fees.
Freight Factoring Scorecard: Making the Decision to Switch
Is your factoring provider the right fit? Use our scorecard to see if it's time for a change.
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