An early snowstorm took Vermont road crews by surprise and turned the interstate, main routes, and back roads into skating rinks. As tractor-trailers and other vehicles went sideways going down a notoriously tricky hill, the interstate came to a standstill for several hours.
When there’s a shutdown on your route due to the weather, an accident, or something unexpected, it impacts your business. Imagine you have a driver hauling items from Boston to Montreal. Usually, this route takes about 5 hours one-way. A 3-hour weather-related delay puts a trucker’s total one-way driving time to just about 8 hours.
Under the FMCSA’s Hours of Service rule, the driver will struggle to return to Boston before a 10-hour break is legally required. Your company now has a driver out of service for 10 hours before the return trip is even completed. In many cases, a motel or hotel stay becomes necessary.
Your driver’s extra time on the road is just one factor. You also have fuel consumption while a truck is idling in traffic. If that or future loads are delayed or missed, you lose money, and your reputation for timely deliveries takes a hit. None of that is ideal, as it eats into your expected profit margins.
When these delays and unexpected obstacles end up costing more than planned, what do you do? What are the best ways to create a safety net that accounts for surprises?
What Is Freight Factoring?
Freight factoring is a service where you sell your invoices to a financial partner at a discount. While it seems complex, it’s actually a simple process. Once you’ve signed up with your freight factoring partner, you do the following.
- Enroll your broker or shipper with the factor to get paid quickly.
- The factor runs credit checks to determine your client’s trustworthiness.
- Drive loads as usual.
- Send the signed bill of lading to the factor.
- The factor processes your request and pays you immediately. (The amount due minus the freight factoring fee.)
- Wait for funds to arrive, as soon as the same day, but usually no more than two business days later.
- Use those funds to fuel your trucks, maintain your fleet, pay drivers, and cover other expenses.
How Freight Factoring Saves the Day
When you have drivers delayed by weather or other unforeseen events, your bills don’t stop. They need to be able to fuel up after idling longer than expected. They may need you to cover the cost of a hotel room for the night. There are meals and out-of-service hours to consider. Delays don’t magically stop expenses from piling up.
Usually, you deliver a load, send an invoice, and wait until the end of the month to get paid. If a client pays late, you have bills piling up and no money to pay them. With freight factoring, you get paid immediately.
You have money coming in before you would if you were doing the invoicing and chasing payments on your own. This makes it easy to pay bills before late fees pile up. Your drivers can fuel up without using credit cards with high interest rates. You can afford hotel rooms and meals for drivers dealing with frustrating delays.
The Additional Benefits Freight Factoring Offers
Getting paid the same day is just a small part of the benefit of freight factoring. Several other perks come from this type of partnership.
- Business line of credit: Qualify for low-interest business lines of credit that help you manage larger expenses like emergency repairs and new equipment.
- Cash advances: Some companies allow 50% cash advances that ensure you’re paid half of what’s owed when you pick up a load.
- Fuel discounts: Save money on every gallon of gas or diesel that goes into your trucks.
- TMS integration: Use a single portal to access everything, from payment status to completed invoices.
Tips for Choosing the Right Factoring Partner
The right partnership makes a big difference in the world of freight factoring. Too many trucking companies fall for low rates and discover they’re not as low as expected due to hidden fees. How do you find the best freight factoring company to partner with?
Here’s a handy checklist to help you narrow down your choices.
Fee Structures and Factoring Costs:
- Are you expected to pay a set-up or application fee?
- How many invoices are you expected to submit each month?
- What is the factoring rate? Is it a flat rate, a variable rate, or a tiered rate? Look for companies with transparent prices.
- What is the factoring rate for non-recourse vs. recourse arrangements? Recourse means you must pay the money you received back if your client doesn’t pay. Non-recourse protects you in certain situations.
- If your client doesn’t pay on time, does the rate increase?
- What percentage of the money do you get paid immediately? Most advance rates fall in the 90% to 95% range, but some companies offer 100% advances.
- Is there a reserve? If so, how much is held back?
- Does the factor charge fees for ACH, same-day funding, or wire transfers? If so, how much are they?
Contract Terms:
- Do you have to factor invoices for every client, or can you pick and choose?
- If non-recourse arrangements are available, what are the restrictions? Are there any situations where your client’s non-payment is your responsibility?
- Are you locked into an extended contract, or is it flexible like a month-to-month contract?
- Is there a trial period before you’re locked into a contract?
- If you cancel your contract early, what is the penalty?
- Do you have time to review the contract and have a lawyer look it over, or do you have to sign immediately to get the promised rate?
Customer Service and Additional Services:
- How do you reach the factoring agency’s customer service team?
- Is it 24/7 or during limited hours?
- How long does it take to get set up once you decide?
- What additional services are available? (Fuel discounts, access to additional financial products, a factoring app that you access while you’re on the road)
- Are business credit checks free, or do you pay for them?
- If you need a business credit check on a weekend, is it possible?
What makes Saint John Capital the best partner for trucking companies? Our experience and background in the trucking industry mean a lot. We know trucking inside and out and understand the difficulty late payments cause.
Our services and fuel discounts help you succeed. Plus, we have some of the lowest freight factoring rates in the industry. Give us a call and find out how little it costs to get paid the same day.
