If you’re a broker that works with carriers that factor, you know how annoying the constant calls regarding payment from their factoring companies are. These calls can be a significant drain on your time and efficiency and not only disrupt your workflow, but can also lead to unnecessary stress and frustration.
But wait, isn’t Denim a factoring company, as well? Yes, but we specialize in factoring for freight brokers and fleets. Carrier factoring companies provide liquidity to owner operators and smaller carriers to help them manage cash flow, pay for fuel, maintenance, and other operational costs. They advance a payment to a carrier and then contact you for that payment.
If you’re tired of the calls from carrier factoring companies that are trying to chase down payments, here are 3 steps to minimize these calls and improve your day-to-day operations.
Step 1: Find Your Average Days to Pay for a Carrier’s Factoring Company
The first step to reducing calls from carrier factoring companies is understanding your average days to pay for their invoices. This freight brokerage metric is crucial as it determines when factoring companies expect payments and influences their follow-up frequency.
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To calculate your average days to pay:
- Gather your payment records for the past few months for each carrier.
- Calculate the number of days between the invoice date and the payment date for each transaction. If you factor with Denim, we can pull this report for you.
- Calculate the average of these days per carrier.
By knowing your average days to pay for a carrier, you can better anticipate when factoring companies might start reaching out. This awareness is the foundation for the next steps in reducing those calls.
Step 2: Understand the Average Days to Pay for Carriers' Factoring Companies
Factoring companies track your average days to pay, and use the metric as a benchmark. If you pay beyond the average, they will likely start contacting you, regardless of your contractual payment terms.
For instance, if you usually quickpay (1-2 days), factoring companies will expect this prompt payment consistently. Any delay, even if minor and within your agreed terms, can trigger persistent follow-ups.
Here's why this happens:
- Factoring companies compile a list of invoices that are past the debtor’s average days to pay each month. This raises red flags for carrier factoring companies because any variance outside of average days to pay could be a sign of cash flow or liquidity issues.
- If you appear on this list, you will be subjected to increased follow-up calls and emails.
In order to effectively manage this, it is important to make regular payments. One convenient way to achieve this is by partnering with a freight factoring company like Denim, which offers a days-to-pay feature. This feature automatically sends payments a specified number of days after the date of the invoice. By maintaining this consistency, the need for follow-up communications will be greatly reduced.
As carrier factoring companies typically have a large workforce, it is impractical to engage with their collections team. The best approach is to avoid getting on their list altogether, which can be accomplished by consistently making freight payments on time.
Step 3: Shift Payment to Net-30 Days, If Contractually Feasible
One strategic way to reduce calls is by shifting your payment terms to Net-30 days, if possible. This approach offers several benefits:
Flexibility
You have more time to manage cash flow and handle unexpected delays without immediate pressure from factoring companies.
Reduced Follow-ups
Factoring companies typically check outstanding payments on a monthly basis. With consistent net-30 terms, you are less likely to appear on their follow-up list. We recommend paying in 27-28 days to stay below net-30 business days.
A Better Score
Net-30 payment terms are often favorable in credit reporting with agencies like Ansonia, which can enhance your reputation and reduce hassle.
As you build up your average days to pay to 30 days, you will likely still receive calls. Remember, creating a new average takes making Net-30 payments consistently for multiple payments. It won’t happen overnight, but eventually you will notice less calls from carrier factors.
What About Your Credit?
Delaying your payment to carrier factoring companies might seem like the opposite of what you want to do if you want to build credit, but in reality, delaying payment may actually improve your broker credit score.
This is because some of the largest carrier factors don’t report payments to business credit bureaus like Ansonia if they are paid faster than 30 days. Some will only report open balances once a month. So if you are consistently paying down the balance as soon as it’s open, your volume will not be reported. A Net-30 day score is considered perfect with Ansonia.
Will Delaying Payment Impact My Carrier Relationships?
Carrier relationships your business. One of the main benefits of using a platform like Denim is to strengthen carrier relationships through transparency and quick payments.
In the steps outlined above, you are paying the carrier factor, not the carrier directly. Because of this, delaying payment and not quickpaying won’t have any impact on your carrier relationships because your carriers are still getting paid on time.
Reduce Carrier Factoring Calls With Denim
By finding your average days to pay, understanding the expectations of factoring companies, and shifting to Net-30 payment terms when feasible, you can significantly decrease these interruptions and enhance your operational efficiency.
In addition, working with a freight broker tool like Denim can help alleviate some operational stress. Not only is our platform designed to help you build strong carrier relationships, but we often have relationships with carrier factoring companies so we can provide guidance on ideal average days to pay.
We help brokers optimize their back office operations, including paying carriers, to grow their brokerage. If you’d like to learn more, request a quote today.
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