Hot shot trucking involves getting loads to their destination as quickly as possible. These are urgent loads, and there’s no time to waste. You’ve done your part and got the items to the destination earlier than expected. That’s great, but now the wait begins.
Clients may need loads delivered ASAP, but that doesn’t mean they pay you with the same urgency. Often, you’re still going to wait the 30, 60, or 90 days, depending on your invoice’s net payment terms. Meanwhile, you need to pay for fuel, truck maintenance, loan payments, rent, wages, insurance, licenses, utilities, etc. How do you stay afloat when you’re not being paid quickly? Saint John Capital has the answer.
Payment Delays Impact Your Business
Consider all the things you have to pay for each week. Your drivers need full tanks. Trucks have to undergo quick inspections to ensure they’re ready for the trip. You’re paying for oil changes, new tires or treads, and windshield cleaner all of the time.
Once a month, you have electricity, heat/cooling, internet, and phone bills. You have licensing to keep current, insurance on your trucks, benefits for your staff, wages, office equipment, marketing materials, and other miscellaneous expenses that quickly add up.
When you’re being paid on a Net 30, 60, or 90 basis, you’re waiting a long time for money to come in. As you spend, spend, spend, your savings dwindle, and it can become difficult to pay your bills on time, especially if a client pays later than expected.
Eventually, you start charging some of your expenses on a business credit card. The interest rate is high, and that’s taking from your potential revenues. It’s hard to grow your business when your profit margin shrinks.
Your credit score goes down with each late payment or credit card charge. As a result, a loan you need for new trucks is going to have a higher interest rate, which means you’re losing more money.
Competing hot shot carriers have a stronger cash flow. Their credit score is higher because they don’t rely on credit cards and loans to get by. This makes them more attractive to clients looking for a new trucking company to work with. That also impacts your business.
How Does Freight Factoring Help Your Trucking Company Succeed?
Freight factoring is a financial service where you sell your unpaid invoices to a freight factoring company at a discount. In exchange for them getting to collect the total amount due from your client, you get paid immediately. Depending on the arrangement, you could get paid the same day.
You do pay a small fee, which is why it’s said you sell your invoices at a discount. Suppose you have $20,000 due for a rush delivery, but the client takes up to 60 days to pay. You sign up for freight factoring for a 2% freight factoring fee. Instead of being paid $20,000, you’d get $19,600.
Sure, you’re losing $400 in possible revenue, but you’re getting paid immediately. You don’t have to charge things on high-interest credit cards. And, you’re not risking having no money available when payroll is due.
There’s one more benefit to consider. Freight factoring is not a credit product. Your credit score doesn’t matter. It’s your client’s credit score that factors use when processing your payment request.
How Freight Factoring Works: A Step-by-Step Guide
Freight factoring is a simple process. Most of this is done online or by the freight factoring company’s app. You can call if you want, but if you’re busy and have no time to sit on the line, that’s fine. An app makes it easy to get started and request payments.
The steps to getting started are:
- Apply online with your company name, contact information, and your MC number. You need to answer a couple of questions about the number of trucks in your fleet and whether you’d want recourse or non-recourse factoring.
- The freight factoring company pulls up your client’s credit report to see if they’re responsible when it comes to paying invoices.
- Sign the freight factoring agreement after you read it over to ensure you agree to all of the rules.
- Deliver the load.
- Submit a payment request to the freight factoring company.
- Get paid the amount due minus the fee.
- The freight factoring company submits an invoice to your client.
Once your client pays the freight factoring company, you’re paid any remaining balance. This will depend on the arrangement you made. If you agreed to 90% upfront and the remaining 10% minus the factoring fee later, you’d get two payments over time.
If your client doesn’t pay the invoice as promised, you do have to repay the money you received in advance. However, a non-recourse agreement protects you from that. If the client went bankrupt or shut down between the delivery and the invoice due date, non-recourse agreements protect you. The rates are higher, but it’s a nice form of insurance to have on your side.
Choosing the Best Factoring Company for Your Trucking Company’s Needs
Freight factoring works effectively when you choose the best freight factoring company for your needs. Hot shot carriers need to look at the following.
- Does the factor understand the trucking industry and hot shot trucking?
- Are the fees clearly listed and easy to understand?
- How quickly are payments made? Is there a deadline to meet if you want same-day payments?
- How responsive is customer service? Can you reach out for help using a method that works for you?
- Are non-recourse factoring arrangements available? What are the fee differences between recourse and non-recourse? Is there a hybrid of the two where you’re only responsible for a percentage of the amount owed?
- How do you make a payment request? Can you do it online or on an app, or do you have to call?
- Does the company have a good reputation and positive reviews for the most part?
- Can you try the service for a month or two and see if it’s the right fit?
- Are you penalized if you want out of the contract?
- Do you have to send all clients’ bills of lading to the freight factoring company, or can you pick and choose?
- Are there monthly quotas to meet?
Freight factoring does have a fee involved, but Saint John Capital’s fees are among the lowest in the industry. We know how important it is for trucking companies to have a strong cash flow in order to stay solvent and competitive.
Ask us about our freight factoring services for hot shot carriers. We’re here to offer you our trucking industry expertise, low rates, and same-day payments.
