In April 2023, more than 750,000 U.S. motor carriers with at least one truck were in operation. By the end of 2022, the nation had 8.4 million people employed in trucking jobs. It’s a lot, and 95.8% of those trucking companies do not operate more than 10 trucks. There are a lot of small trucking companies out there and many of them would benefit from freight factoring to prevent financial strain.
Even a large company can face financial crises. For close to a century, Yellow Corp and its union workers couldn’t agree on a contract. As the company was already heavily in debt for a reported $1.5 billion, Yellow Corp decided to shut down and lay off all 30,000 drivers and dock workers.
Before debt gets that high, truckers need to look into the benefits of using freight factoring for immediate cash. It’s a good way to stay financially stable when times are challenging.
What Is Freight Factoring?
Freight factoring is a service where a factor purchases your invoices from you. Once you’ve delivered or picked up a load, you send the factoring company the signed bill of lading. The company pays you and creates an invoice to send to the client for you.
You get immediate cash, minus a small factoring fee, and the factor is then responsible for chasing down the payment from your client. It’s essentially a cash advance for as much as 100% of the invoice’s value.
Suppose you’ve completed a job that’s supposed to pay $10,000, but the client always pays on the first of the month. You’d love to have that $10,000 you’re owed right now as you have bills to pay. With freight factoring, you pay a fee of typically 1% to 5%, depending on the factoring company, and the rest of the money is yours right now.
If the fee is 1%, you’d get $10,000 minus the 1% fee ($100). Some factors will only give you a certain percentage and then pay the balance once they’re paid, but it depends on the arrangement. Many companies will give you the full 100% minus the fee right now.
The other aspect to consider is if the arrangement is recourse or non-recourse. With recourse, the factor can come back to you for repayment if your client never pays. Non-recourse often has a higher fee, but you don’t have to worry about repaying if your client doesn’t pay. It takes any stress off your shoulders.
When you get paid, it’s sent to your bank via an EBT transaction or you can have it deposited to your Visa card. You won’t have to carry cash on the job. If you need to fuel up, use the card that usually offers fuel discounts too, so you get additional savings that lower your expenses.
Explore the Benefits of Freight Factoring
Freight factoring provides three key benefits.
You Reduce Your Risk
When you factor your invoices, you reduce the risk of not getting paid and falling behind on bills. You have money coming in and keep up with your bills. If the client never pays, as long as you have a non-recourse agreement, it’s not your problem. The slightly increased fee is a great form of insurance against dealing with unpaid invoices ever again.
Payments Arrive Within a Couple of Days or Faster
With a freight factoring arrangement, it’s possible to get paid the same day. Typically, you have to have a debit card with the factoring company and there’s a noon deadline. If you meet those two criteria, payment is released to your card the same day.
Even if you don’t have the card or miss the deadline, it’s possible to get paid within a couple of days. Most banks or credit unions process the EBT within two or three business days, so you never have to wait weeks or months.
You get paid quickly, and that ensures you have a strong cash flow every month. If you’re used to waiting for your clients to pay on the first of the month and then needing another week for the check to clear both banks, you never have to worry about that again. Cash is in your hands in days.
Your Business Credit Score Increases
As money is coming in regularly, you pay bills on time. You stop paying creditors late and gaining a lot of dings for late payments. This helps your credit score rise. The higher your credit score, the better it is for your business if you ever need to apply for a truck loan, lease, or small business loan.
Common Misconceptions About Factoring
While factoring is helpful, some common misconceptions keep people from signing up. Have you heard any of these? They’re untrue.
Freight Factoring Is Only For Established Companies
This is untrue. Freight factoring is for any company that wants to get paid fast. You can be a small trucking company or a large one. The only thing to keep in mind is that the more trucks in your fleet, the lower the freight factoring fees. The reason why it’s cheaper for a company with fleets of 10 or more trucks is because you handle more volume (aka business) each month. Quantity does lower the factoring fee.
Your Clients Will Drop You
Clients don’t care who sends the invoice. They’re concerned with whether you’re delivering their goods on time and without damage. With a freight factoring company handling the billing and finances, you’re free to focus on exceptional delivery services.
Factoring companies pride themselves on quality customer service, too. Your clients aren’t going to find it difficult to work with a factoring company and want to drop you.
Once You Sign Up, All Clients Must Go Through Factoring
You have one client who pays the same day you email an invoice, and you would prefer to avoid factoring those invoices. But, you’ve heard that once you sign up for freight factoring, you have to factor every client you have. That’s not the case.
If you have trusted clients, you get to keep processing their invoices on your own. You do not have to hand over every bill of lading when you partner with Saint John Capital. Pick and choose which clients you want Saint John Capital to cover and handle the rest yourself.
How Do You Get Started
Freight factoring sounds ideal for boosting your cash flow. What happens now? Reach out to Saint John Capital and complete the quick application form. An advisor reaches out to discuss the different options for factoring agreements, what the fees are for each one, and what happens next.
When you partner with Saint John Capital, you enjoy added perks like free business credit checks. This is important if you use the Find Loads app to find more work. Before you agree to work with a company for the first time, you can check their credit score for free and make sure they pay bills on time. It’s a win-win situation. Work with more clients without taking on additional risk, and use that extra cash to grow your trucking company.