Too many people think freight factoring is only for companies with large fleets. The truth is freight factoring is ideal for companies with one or two trucks. By getting paid quickly, it makes it easier for your business to grow.
Trucking companies have expenses that some people don’t realize. You have the cash you need for licensing and permits. Trucks can cost far more than $50,000. You have salaries, rent, office equipment, and marketing weighing on you. As you spend this money, you need cash coming in, or the financial struggles begin. When your clients take weeks or months to pay, it’s stressful.
How Does Freight Factoring Work?
Freight factoring ends the moments of panic when your bank accounts are almost empty, but your brokers or shippers aren’t paying as quickly as you need. You sell your bills of lading to a factoring company. They pay you for those invoices, so you get cash in hand immediately. Then, they track down payments from your brokers.
You’ll have a small fee, usually no more than 5%, deducted from the amount the factoring company pays you. Depending on the arrangement, you may only get a percentage of the money due. Once the bill is paid, the remaining amount is released.
With immediate payment, you have money to invest in growth. Refilling fuel tanks isn’t a problem as you have the money available. You can pay for repairs, cover your rent, and pay employees without having to figure out where the money is coming from until you get paid.
Things to Look for With a Factoring Agreement
Take your time and research your options. Before you sign a contract or agree to anything, you need to ensure the factoring company is a good fit for your small fleet’s needs.
#1 – Look for Companies That Let You Decide Which Bills of Lading to Factor
Suppose you haul loads for two brokers and are expanding your business. You have two new brokers on your list. You know the two brokers you work with pay on time, and you don’t want the freight factoring to apply to established clients. You only want to submit invoices for your new shippers. If a company doesn’t allow that, move on. You want to be able to factor on a customer-by-customer basis.
#2 – Check if Free Credit Checks Are Provided
Having a free credit check of brokers and shippers is a tremendous benefit. You’re able to see if a company has a reputation for late or slow payments. Information acquired through credit checks is a valuable tool to use when choosing new clients. It allows you to agree to new clients without taking on an added risk.
You can ask potential clients to provide a credit report, but it gets costly. Experian Connect allows customers to request their credit reports to share with a small business professional. The cost is almost $15 per month. You may find potential clients don’t want to provide this information. TransCredit is a business credit reporting agency that specializes in transportation. You can access credit reports through them, but there’s a membership fee. Other companies have similar services, but nothing will beat free credit checks.
#3 – Skip Time-Consuming Invoicing
The best freight factoring firm to work with is one that will do the invoicing with you. Ideally, find a company with an app where you can upload bills of lading. Let the factoring company do the rest. They do the invoicing, pay you automatically through a bank transfer or debit card deposit, and allow you to download the invoices they create to your financial software.
#4 – Aim for 100% Advances
Find companies that offer 100% advances. Instead of getting some of your money now and having to wait for the balance, look for a 100% advance. Get all of your money, minus the fee, right now.
Why is this so important? Having all of your money as soon as possible allows you to plan your weekly or monthly finances. You know how much money is coming in as soon as you submit the bills of lading, so you can better prepare your budget.
#5 – Watch for Hidden Fees
Factoring companies charge a percentage of your invoice. Some also add hidden fees for clients who don’t pay within 30 days, bank transactions, etc. Partner with a factoring company that uses flat fees and see the costs before you agree to anything.
You also want low factoring rates. Small fleets often get charged higher factoring rates. Saint John Capital has 1.5% for three to six trucks or 1.95% for one or two trucks. Small fleets are welcome to enjoy low freight factoring rates that help them succeed.
#6 – Enjoy Benefits of Payments to a Fleet Fuel Card
Does the factoring company have a fleet card available? Can you get same-day payments made to that card? It’s not always an option, but if it is allowed, it’s an added perk.
ExxonMobil Fleet cards help save money on fuel by extending discounts of up to 6 cents per gallon. The cards are accepted at Exxon and Mobil stations. Fleet cards with gas discounts help you cut costs. Sunoco has a similar fleet card that offers a 25 cent discount for two months and then drops to 6 cents a gallon or less, depending on the amount of fuel you purchase.
Find out if the factoring company has a debit card. In addition to quickly getting payments sent directly to the card, some will extend fuel discounts that cut your trucking expenses. The Saint John Capital Fuel Card allows you to save 14 cents per gallon and is accepted at thousands of gas stations across the U.S.
Saint John Capital is happy to help small fleets grow through transportation factoring and additional services like lines of credit, debit cards attached to discounted fuel programs, and an app that enables you to find and track loads. We’ve helped many trucking companies grow into large, nationwide firms and would be happy to help you achieve your goals.