What do you know about freight factoring? Many owners of small fleets use freight factoring to grow their fleet. But, what about a larger trucking company? Does freight factoring for large fleets benefit trucking businesses?
Across the U.S., haulers from both companies with small fleets and large ones help move goods from one area to another. In 2019, gross freight revenues topped $791 billion for close to 12 billion tons of freight transported by trucks.
Those statistics were before the pandemic. As the pandemic hit, more people were home. Whether their companies moved to a work-from-home format or they had to stop working to care for children who couldn’t go to school, online shopping and package deliveries skyrocketed. Many of these orders placed through major online retailers like Amazon, Target, and Walmart increased the demand for trucking firms to move loads from manufacturers and ports to airports and warehouses.
With more loads needing drivers, haulers saw record amounts of work. OOIDA reports there were 33.8 million trucks in 2020, including light, medium, and heavy trucks. A small portion of these trucks were courier or parcel companies. Private fleets made up a much larger percentage, but for-hire fleets made up almost half of the trucks on the road. For-hire fleets take work from clients and provide a bill of lading once the shipment is delivered. At that point, they invoice the shipper or broker and wait for the payment to arrive. That’s where the problems begin.
Sometimes, clients can take a month or two to pay. Your company probably has 30-day payment terms on the invoice, but that doesn’t mean clients always remit payments on time. When you take new clients, there’s the risk of not getting paid. Waiting weeks or months to get the money you’re due puts you under financial strain. You have drivers to pay, fuel costs to cover, and maintenance and repairs on your fleet. To spend money, you need to have money coming in. That’s where freight factoring for large fleets comes in.
Understanding How Freight Factoring Works
Say your fleet of 20 trucks has hauled four loads each this week. You have 80 bills of lading that are waiting to be paid. Those brokers and shippers wait until the last minute to pay. Your trucks are using gas, but you’re not going to get paid for another four weeks.
Instead of waiting, you hire a freight factoring company to factor your invoices. For a small fee, the factoring company pays you all or a percentage of the money due. You get the cash instantly and no longer have to wait. It’s up to the factoring company to wait for your clients to pay them. Essentially, it gives you a cash advance that keeps your business running without having to borrow money until you get paid.
The Benefits to Factoring Your Company’s Freight Invoices
Why factor? Shouldn’t you wait and get the total amount and not lose any of your money to the fees a freight factoring company charges? You could, but you need to have the cash reserves to pay your bills. Per the U.S. Bureau of Labor Statistics, heavy and tractor-trailer drivers have a median wage of almost $23 per hour. If you have 20 drivers working 40 hours a week, at the end of a week, you owe them $18,400.
You have to pay for the fuel for your trucks, any repairs that the trucks need, the salaries for your office workers, your own pay, and maintenance needs for your trucks and building. Plus, you’ll have utility bills, the rent or business loan for your facility, taxes, office supplies, computers, and cellphones to pay for. You need money coming in regularly to avoid losing workers, paying late payment fees, or facing eviction.
When you factor invoices, you do pay a fee. Shop around to find a fee that meets your expectations. Saint John Capital charges just 1% for trucking firms with 11 or more trucks. That’s not a lot to pay, considering you no longer have to chase down clients that don’t pay their invoices on time. The factoring company is responsible for that. You focus on finding loads, scheduling drivers, and running your business. The factoring company does the invoicing, pays you immediately, and collects payments. You can download the invoices to your accounting software.
What Should You Look for When Choosing the Best Factoring Company?
How do you choose a factoring company? Start with the fees. A factoring company does charge a fee, but it shouldn’t be high. Typically, the national average is around 3%. There may be other fees like banking transaction fees, so ask about those before you agree to use a company. Ideally, find a company that has flat fees.
Find out if the company uses non-recourse or recourse arrangements. Non-recourse is best as it means if your broker or shipper fails to pay, the freight factoring company will not come after you for repayment. With a recourse arrangement, you’d have to pay back money if your client doesn’t pay.
Learn how the factoring company collects your bills of lading. If you can submit them through an app, it saves a lot of time. You don’t have to mail or fax anything. Scan the bill of lading with your phone and submit it for quick payment.
Does the factoring company have discounts available on fuel costs? If there’s a debit card available, it can save a lot of money. You have invoices factored, and payments go directly to the debit card. You now have money available to fuel your fleet.
This debit card is also attached to a fuel discount program. Instead of paying the national average (as of 9/10/21) of $3.181 (regular) or $3.295 (diesel) per gallon, a fuel discount reduces the cost. If you sign up for a Saint John Capital Fuel Card, you can save up to $0.14 per gallon every time a truck fills its tanks.
Saint John Capital offers 100% percent advances. We also provide free credit checks to help you decide if a broker or shipper is likely to pay on time. With our low, flat-rate fees, you quickly receive payments for the loads you’ve completed. There’s no waiting around or worrying about tracking down clients who haven’t paid their invoices on time. Let us take care of your invoicing while you focus on finding more loads for your drivers. Complete the online application to get started.