Whether you’re an owner-operator or head a large trucking fleet, timely payments help you grow. However, even one late or missing payment threatens to topple the business you’ve built from the ground up.
The trucking industry is filled with slim margins and continuous expenses. A strong cash flow is necessary if you’re going to make it in this industry. The problem is, how do you get paid promptly when your clients prefer a 30, 60, or even 90-day billing cycle? That’s where freight factoring comes in.
Freight factoring is a service that ends frustrating payment delays. Agree to drive merchandise from Point A to Point B, do the work, and get paid immediately minus a low freight factoring fee. That’s the joy of freight factoring. You no longer wait to get paid.
Saint John Capital is an expert in freight factoring with decades of trucking industry experience. Here’s what you need to know about how freight factoring works.
The Complexities of a Freight Factoring Arrangement
Freight factoring allows you to get paid immediately. Instead of invoicing your client as you usually would, you sell that invoice to a freight factoring company. They pay you the amount owed, minus any fees and reserves.
Once you’re paid, the freight factoring company invoices your client and takes over collecting that money. That’s how they make back the money they advanced you and cover their business expenses and salaries. You do pay a small fee, but it’s minimal compared to credit card interest rates, late fees, and damage to your business credit rating.
Freight factoring seems simple at first, but there’s a lot of complexity to it. This is a good thing, as that makes it easier to get exactly what you need in terms of benefits and fees. We’ll start with the basics.
- Sign a freight factoring contract with a factor.
- Agree to pick up and deliver a load.
- Deliver the load and get a completed bill of lading.
- Make a payment request by sending the bill of lading to your freight factoring specialist.
- Wait for the factor to process your payment request.
- Once approved, wait for the payment (minus the factoring fee) to go into your account.
- Use those funds to fuel your trucks, pay for maintenance, cover bills, or transfer them to your bank account.
You’re being paid long before you usually see your client pay an invoice. That makes it easier to keep up with bills, set aside money for your business’s growth, and ensure you’re keeping your clients and employees happy.
Type of Arrangement
While those are the basics, there are complexities to consider. The first is what happens if your client doesn’t pay the invoice. This is where the choice between a recourse or non-recourse factoring arrangement matters.
- Recourse: You’re responsible for repaying the amount you received in advance.
- Non-Recourse: The freight factoring company must swallow the loss if the unpaid amount was due to sudden bankruptcy or closure. If it was due to you damaging the merchandise, you’re still responsible.
Reserves
Depending on your needs, there are different reserves offered and even no-reserve freight factoring arrangements. Reserves are the amount of funds held from you in a reserve account until your client pays the invoice.
It’s possible to get 100% invoice factoring with Saint John Capital. You may pay higher fees when you get everything you’re owed all at once. Depending on the freight factoring company, you may enter into an agreement where you get 85% now, and the remaining 15% is withheld until your client pays the invoice.
Saint John Capital also offers a 50% reserve option, where you get paid 50% when you pick up the load. This helps you get half of the money you’re due to make, but you get the 50% in advance so that you can pay for gas and food while you’re on the road.
Freight Factoring Fees
The type of factoring arrangement you choose determines your freight factoring fee. The more risk you face, the lower the fees. But paying a higher fee is advantageous if you want protection against a sudden business closure in a turbulent economy.
Generally, freight factoring fees are less than 5%, but it does depend on several factors.
- How many trucks are in your fleet?
- Do you want recourse or non-recourse factoring?
- Is there a reserve or not?
- When do you want payment, before the delivery or after?
- How much business do you do each month?
We’ll quickly cover how freight factoring fees work. A freight factoring fee is deducted from the amount you’re owed on the invoice.
If you agree to a 100% cash advance for a 3% fee, a $30 fee is deducted from every $1,000 you’d bill on an invoice. Suppose you deliver a load for $10,000. The freight factoring company collects $300 as the freight factoring fee. You get the remaining $9,700 as soon as that same day.
In addition to freight factoring fees, watch for EBT charges when transferring money to your bank, origination fees, and account set-up fees.
Additional Services
In addition to fast payments, freight factoring services offer additional services that simplify your business operations. Look for companies that offer these services or benefits.
- 24/7 customer service
- 60-day trials to ensure it’s the right factoring partnership
- Fast onboarding
- Free business credit reports
- Fuel discounts.
- Low-interest business lines of credit
- No hidden fees
- Online account tools for fuel pricing, bill of lading submissions, and 24/7 access
- TMS integration
Because some clients are responsive and pay in a timely manner, Saint John Capital allows you to pick and choose which clients we invoice and which ones you take care of yourself. You’re not obligated to have us take over invoicing and collections for every client you have.
Freight Factoring Is a Wise Business Strategy
Thanks to technology, a freight factoring arrangement is easy to set up, and getting paid is just as simple. Our process follows these steps.
- Apply for an account.
- Negotiate rates and payment options with a freight factoring specialist.
- Wait for your application to be approved.
- Sign our contract.
- Take jobs. (We recommend using our free business credit checks to view the payment history and rating before taking on new clients.)
- Haul the load and submit the bill of lading through the website or app. (Submit your payment request by noon EST and get paid the same day.)
- Get paid as soon as your payment request is approved, usually within a business day.
Saint John Capital prides itself on providing services designed to help you achieve success. We have decades of experience and want to see our clients succeed.
Sign up online and enjoy some of the industry’s lowest freight factoring fees. We’re here for you if you have questions or want to learn more before you apply.
The bottom line we ask prospective clients is if the current payment terms are helping you grow. If you’re driving loads for the government and not seeing payment for 90 days, it’s time to change that. Get paid the same day and experience less stress and a stronger cash flow by partnering with Saint John Capital.
