What struggles does your trucking company face each month? Fuel, wages, insurance payments, equipment loans, rent, credit cards, utilities, and IT hardware and software eat into your funds.
When you have clients waiting 30, 45, or even 60 days to pay what they owe you, you’re stuck using credit cards and business lines of credit to cover the bills. If you hold off on paying some of your creditors, late fees pile up. Your credit score takes a hit.
Strong cash flow is everything when building a strong trucking company. Small fleets add to the challenges as you’re competing against large companies with many trucks ready to take on more work. You need the cash to keep your trucks maintained and ready for additional work. Instant pay options make this possible.
Popular Instant Pay Options in the Trucking Industry
There are three main options for getting instant pay for your work.
Broker Quick Pay
Some brokers offer quick pay services that ensure you get paid instantly. If a broker provides this option, you get the funds within 2 to 7 days. It’s a lot faster than waiting a month or more. It’s only an option with that specific broker, however. Your other clients may not offer it.
Each client offering quick pay has its own format. You need to keep track of how to invoice each client and monitor payments to know when to start collections for those who haven’t paid.
Freight Factoring
This service involves selling your invoices at a discount. That discount is a factoring fee, usually no higher than 5%. You get the money owed, minus that factoring fee, as soon as that afternoon.
You pick up or deliver a load for your client. You take the completed bill of lading and ask a freight factoring specialist to pay you immediately. The factor processes your request and sends the advance directly to your fuel card or factoring account. The factoring company also does the paperwork for you. You print invoices from the app without having to do any data entry.
Real-Time Payments
The final option is a real-time payment where you bill the client through an app, and they pay immediately, putting the funds in your hands. There’s no delay for bank transfers, and payments still go through on holidays or weekends.
For example, suppose you agree to accept payments through a third-party service like PayPal or Stripe. You invoice the client, your client pays, and you have the funds immediately, even if it’s after typical bank hours.
Real-time payments are fast and convenient, but there are often fees per transaction. You must decide if the fee is affordable. Look at ACH fees to get an idea of what fee is charged.
How Does Instant Pay Solve Cash Flow Problems?
Hopefully, everything goes right with your small fleet. You have drivers to transport freight from Point A to Point B. The trucks are running well. Clients abide by the Net 30 payment terms.
What happens if things turn sideways? A client didn’t pay by the end of the 30 days. You have wages, insurance, tolls, and fuel to pay for. You’re tapping into savings to cover your bills. When your client finally pays, you’ve drained your savings, racked up interest, and damaged your credit rating.
A FICO credit rating is based on:
Your payment history and the number of late or missing payments. (35%)
How much debt your company carries. (30%)
How long has a line of credit been open? (15%)
How many new credit cards or loans have you applied for recently? (10%)
How many different types of credit you have. (10%, but less commonly used in a business credit rating.)
Business credit scores through PAYDEX also look at:
How many accounts do you have with a positive payment history?
How many payments are made early or on time?
What are the dollar amounts of your payments?
A low credit score drives up adjustable loan and credit card interest rates. You need a loan, but the bank isn’t willing to extend longer repayment terms, which means your monthly payment is higher than you’d like.
Your truck insurance rates may also be affected by your business credit score. Low credit scores drive up your insurance rates in many states.
When you get paid the same day or shortly after, you have money to pay bills on time. That helps boost your credit rating. If you need new equipment, the loan’s interest rate will be favorable with a high credit score.
You have the funds available to pay your employees on time. You keep up with their benefits, such as dental and health insurance premiums.
Your credit score helps maintain a high credit rating, making you more appealing to new customers. More work means more income, so your business thrives.
Everyday expenses like gas or diesel, tolls, and meals on the road aren’t a problem. Funds are readily available to cover those business expenses.
Resilience Starts With the Right Freight Factoring Partner
A resilient trucking company starts with the best partnerships. Finding clients who pay quickly every month may seem impossible. That’s where freight factoring steps in. The factor processes your payment request and pays you as soon as that same day.
You can’t go into a freight factoring partnership thinking you get paid the same day and don’t have to give anything in return. There are considerations:
Contract terms – If you’re locked into an extended contract, will you be able to keep your end of the deal? If it’s a three-year contract, are you sure you are happy working with that partner for three years? If not, you need to keep looking for someone with a shorter contract or on a trial basis for a few months.
Freight factoring fees – The typical fee is 1% to 5%. You must decide if that’s more expensive than late fees, lost business, and damage to your credit score.
Recourse vs. non-recourse – Rates are higher for non-recourse factoring arrangements, meaning if your client doesn’t pay due to bankruptcy or closure, you don’t have to pay the factoring company back. Is that arrangement better for your business, even if the rate is higher? If you opt for a recourse arrangement, will you be able to repay the factoring company?
Transparency – Is the contract hiding any unexpected fees? Is a percentage of your money held in reserve, making it impossible to touch it until the client pays?
When you find a knowledgeable, low-cost freight factoring partner, instant cash payments ensure you have the money to grow your business. Money is readily available for drivers to pay for fuel and take advantage of fuel discounts on the road. You have the funds to pay bills on time and avoid late fees.
Saint John Capital has been in the trucking industry since 2009. We know what you face each day, and our factoring arrangements help you take control of your finances and get paid the same day. Imagine all you could do for your small fleet business if you had a strong, steady cash flow. Contact us today to learn how our partnership makes it happen.
