Threats of high tariffs that drop the number of ships coming into ports and ever-changing fuel and maintenance costs make it hard to build a strong cash flow. It’s worse in the leaner months when purchases slow down between holidays and crop availability. Your trucking business is competing against dozens of others for the available loads.
Gaining a competitive edge is everything when it comes to staying ahead. Too many trucking companies fail each year, often due to the financial strain of slow payments and heightened expenses. Avoid these common pitfalls by working with a freight factoring specialist to get paid the same day you deliver a load.
How Do You Get Same-Day Payments?
When you work with a freight factoring company, you sell your unpaid invoices to that company. Essentially, you pay a fee for the service, which is more like selling your invoices at a discount. Suppose you’ve just completed a delivery worth $10,000. You agreed to a 3% freight factoring fee. The factoring company keeps $300 as its fee and pays you $9,700. You do lose a little money, but you get paid that day.
For many competitive trucking companies, the same-day payment is worth a small fee. Instead of waiting until the end of the month when your clients all pay their invoices, you have money throughout the month to stay afloat.
That’s one of many benefits to freight factoring. Beyond same-day payments, you also enjoy fuel discounts, access to job boards, and the chance to sign up for low-interest business lines of credit products. Fuel discounts alone help you save hundreds on your monthly business expenses.
By leveraging these services, you gain an edge. However, you can’t just dive in. You need to understand the different aspects of freight factoring that can impact how much and when you’re paid. You also need to understand that some factoring agreements have terms that require you to repay the money if your client doesn’t pay the invoice when it’s due. We’ll help you navigate the different freight factoring arrangements.
What Advantages Do Same-Day Payments Provide?
Getting paid the same day your drivers complete a delivery is key to a steady cash flow. The immediate availability of funds benefits you in many ways.
- Hire the Best Truck Drivers
When you always have money coming in, you’re able to attract the best truck drivers. You can provide benefits that the competition doesn’t. That makes them want to stay with your trucking company. Imagine providing what they want, such as wages on demand. They get paid when they need the money instead of waiting until the next payday.
- Have the Cashflow to Grow Your Business
Your trucking company may not need to grow in size, but it should grow in efficiency and reliability. When you have cash coming in each day, you can invest in fuel-efficient equipment and save money on gas or diesel. You have money available to add new trucks to your fleet. Even if you don’t add trucks, you have the money needed to ensure your trucks are maintained and less likely to break down on the road.
- Grow Your Business Relationships
It’s your job to deliver loads from Point A to Point B on time and without damage to the goods. But, it’s not the only aspect of your job. To get enough work, you need strong, positive relationships with brokers and shippers. If you’re sending invoices sporadically, too busy to follow up with clients, or use outdated technology that makes it hard to give real-time reports on your driver’s location, clients may start looking at the competition.
Provide what your clients want. That includes online payment options, invoices sent via email rather than USPS, and trucks that don’t break down. You need technology to guide your drivers to the most efficient route and alert them to accidents and construction delays. With timely deliveries, you keep your clients happy and develop strong business relationships.
- Negotiate Contracts to Benefit Your Company
When you have a strong cash flow, you pay bills on time. Your credit rating increases when you’re not behind on bills or have several late payments. A positive credit rating makes it easier to negotiate favorable per-mile rates, interest rates, and insurance premiums.
- Build Your Savings
Keeping ahead on bills helps in other ways. You avoid late fees and excessive interest on business credit cards. When you’re not covering those fees and penalties each month, you save money. Put the extra cash into your savings and build a financial safety net for emergency expenses.
Important Considerations When Setting Up Freight Factoring
While it’s clear that freight factoring sets your trucking business up for success, there are things you must consider to ensure you get the right arrangement set with a factoring company.
1. Payment Request Deadlines
To get same-day payments, there’s usually a deadline to meet. Make sure you’ve submitted your bills of lading by that deadline. Saint John Capital’s deadline is noon EST. If you don’t need same-day payments, we pay within a couple business days, so payments still arrive quickly.
2. Percentage of the Advance
Factoring rates are dependent on how much of an advance you want. Taking less cash up front with your same-day payment lowers the rate. Asking for the full 100% (minus the fee) does come with a higher fee. You might find that accepting 90% or 95% is enough to help your business thrive.
If you agree to a 90% cash advance, you get 90% of the money you’re owed on the same day. The balance is paid when your client pays the invoice. That can be enough money to cover truck maintenance, wages, fuel, and emergency repairs, which makes it advantageous for your business.
3. Recourse vs. Non-Recourse
What happens if your client never pays the invoice? It depends on the agreement you’ve signed. If you have a recourse agreement, you’re responsible for paying back the money you received.
4. Additional Services
Look at the additional services you’re able to enroll in with a freight factoring arrangement. Fuel discounts are essential. You might also want to have access to load-finding boards to search for new clients to fill gaps in your schedule.
Non-recourse arrangements offer a level of insurance against non-payment. If the client suddenly shuts its business or files for bankruptcy, non-recourse arrangements protect you from having to pay. The factoring fee is higher, but it offers protection that you may need.
Understanding Factoring Rates
While the benefits of same-day payments are substantial, you should take time to look at what sets your factoring rates. Companies look at the following aspects to determine the exact rate.
- How many invoices do you submit each month?
- What are your clients’ business credit ratings?
- How many days do you give clients to pay their invoices?
- Do you want a non-recourse or recourse arrangement?
- Are you enrolling for additional services?
Take your time to compare factoring rates and terms with several freight factoring companies. You need a factor who has rates you agree with and services that help you grow your business. With some of the lowest rates in the industry, Saint John Capital has the rates and services you need to thrive in a challenging industry.
