When you own a trucking business, you find yourself running into several issues. First, you have to pay for your trucks, registrations, insurance, fuel, etc. Second, you have your drivers’ wages and benefits. To keep your business running, you need to have your revenue coming in on time. Just one broker or shipper’s late payment can really throw you off course.
Freight factoring ends that uncertainty. When you partner with a freight factoring company, they pay you an advance on your invoices. This is called a “reserve.” It’s often 70% to 90% paid upfront, with the other 10% to 30% held in reserve. Once the invoice is paid, you get the remainder minus the freight factoring company’s fees. You get the cash in hand as soon as the delivery is made, making it much easier to grow your business and ensure your drivers and schedulers are paid on time.
Understanding the Different Fees
You’ve decided to factor your invoices. You face different fees. Some fees are found with every company, while others may skip certain fees. Invoicing, banking, and transaction fees may all be charged on each invoice that’s factored. Suppose you send an invoice of $10,000 to your friend’s factoring company. Your contract states you pay a freight factoring rate of 3%, a $3 transaction fee, a $1 invoice fee, and a $10 ACH fee. You’re going to pay $300 + $3 + $1 + 10 for a total of $314 in fees.
You may find the $314 is a lot to pay for one invoice, but it comes down to how much time you’d lose tracking down payment on your own. In a small office, you may not have the time to invest in regular calls and reminders to get the money you’re owed. Here are some of the things to look for before signing a contract.
#1 – Freight Factoring Rates
The freight factoring company will charge a fee. The rate you’re charged varies from one company to the next. Shop around and look for the lowest rate, but you also need to weigh the other fees the freight factoring company charges. Rates are often dependent on the number of trucks in your fleet.
Rates are also dependent on the reserve agreement. What does that mean? If you sign a contract for an 80% reserve, you’ll get a lower rate than if you want a 90% reserve. Ideally, you want to find a freight factoring company that offers 100% advances and low rates.
#2 – Banking Fees
Some companies charge banking fees. Banking fees are the fees charged when you request a wire or ACH money transfer from the company to your bank account. If the freight factoring company offers a debit fuel card of their own, you may be able to avoid paying banking fees. Plus, you could end up getting substantial discounts on fuel using your fuel card. It’s important to ask if a prepaid Visa fuel card is available for quick and hassle-free payments.
#3 – Subsequent Fees for Non-Payment
Will you be forced to pay a fee if the broker or shipper doesn’t pay the invoice on time? It depends on whether the factoring company uses recourse or non-recourse options. If the company uses a non-recourse option, they agree to take the entire risk of the invoice not getting paid or being paid on time. A recourse option puts the risk on you, and you’ll be charged a fee if your broker or shipper doesn’t submit payment on time. How much do those fees cost? It varies from one company to the next.
There’s an easy way to lower your risk when it comes to clients that don’t pay. Run credit checks on them before agreeing to haul their loads. If you’ve checked their credit history or partner with a freight factoring company that offers free credit checks, you’ll have a good idea if a broker or shipper is responsible when it comes to paying invoices on time. Be sure to ask the freight factoring firm if they run credit checks for free.
#4 – Contract Cancellation Fee
Be very careful about contract cancellation fees. If a company requires you to sign a six-month contract, you may face cancellation fees if you decide you don’t like the freight factoring services. You could pay thousands to get out of the agreement before time is up.
#5 – Monthly Minimums
The other thing to consider before signing a contract with a freight factoring company is if there is a monthly minimum. You may be required to have upwards of $15,000 in invoices each month. If you fall short, it can become costly.
How Does Saint John Capital Stand Up to the Competition?
Freight factoring rates at Saint John Capital are the lowest in the industry. We offer free credit checks of your brokers or shippers, 100% advances, and the lowest transaction fees in the industry.
Saint John Capital uses a flat fee plan. If your broker or shipper doesn’t pay on time, you will not be charged additional fees. Many companies charge subsequent fees when payment hasn’t been cleared by the due date. It can end up becoming costly for you, but it’s not going to happen when you sign up for our freight factoring services. Are you ready to learn more? Reach us at 1-847-430-3620 to learn more.