Saint John Capital has witnessed the importance of having an immediate cash flow within the trucking industry. Whether you’re an owner-operator or large fleet owner, having to wait 30, 60, or 90 days before payment is both stressful and detrimental to your business’s growth.
Freight factoring is the answer to having a strong cash flow as a trucking company owner. However, you need to maximize the value of your freight factoring agreement to ensure you get the maximum benefit.
Understanding the Full Scale of a Freight Factoring Agreement
While a factoring rate is a big part of a freight factoring contract, it’s not the only consideration. You must understand the full scale of a freight factoring agreement. Make sure you understand each of the following.
- Factoring Rate: This is the percentage that’s deducted from the amount owed on the invoice. If the factoring rate is 1% and you have $30,000 in invoices, $300 is deducted from the amount you receive. It’s essentially the fee you pay in exchange for getting a cash advance long before your client would pay the invoice.
- Reserve Account: Some factoring companies hold a percentage of the invoice value in a reserve account. Once your client pays, the amount held in reserve is released to you.
- Advance Rate: How much you get paid the same day or within a couple of banking days depends on the advance rate. It’s often set up so that you’d get 85%, 90%, or 95% in advance, and the remaining 15%, 10%, or 5% is held until your client pays the invoice. Saint John Capital offers 100% advances.
- Non-Recourse Factoring: With a non-recourse factoring arrangement, the factor takes on the risk of your client not paying the invoice. It’s only covered if the client fails to pay due to financial insolvency or sudden business closure.
- Recourse Factoring: With a recourse factoring arrangement, you take the risk of your client not paying the invoice. You must repay any amount you received in advance.
- Contract Length: Some freight factoring companies require you to sign a contract where you agree to factor your invoices for a set number of months or years before you can exit the contract without penalty. If you terminate the contract early, you’ll have to pay whatever the early-termination fee is.
- Minimum Volume Requirements: How many invoices do you plan to submit for immediate payment each month? Ideally, you want a freight factoring company that doesn’t have a minimum. Some do, however, and if you fall short of that minimum, you’re charged additional fees.
- Set-Up or Origination Fees: This is a fee that’s charged when you set up a freight factoring account.
- Late Payment Fees: If your customer doesn’t pay on time, you might be charged a penalty for their late payment.
- Credit Check Fees: Ideally, you want a partner that offers unlimited business credit checks. Not all companies do, however, and will charge you a set fee for each credit check exceeding whatever monthly limit is set.
- ACH/Bank Wire Fees: Find out how much you pay for each ACH transfer or bank wire you request. While freight factoring payments can go to a debit card, if you need to transfer funds to your bank, it may cost extra.
- Underwriting/Processing Fee: Before you get paid for the work you did, the new broker or shipper must be checked and pass underwriting approval. The payment must then be approved and processed. This is done by pulling up the broker or shipper’s business credit report, running the numbers, and submitting payment if approved. Some freight factoring companies charge a fee for the underwriting work.
Make sure you compare these fees when you’re finding the best freight factoring company to work with. Not everyone is the right fit for your company’s needs, and you have to do your part to research the possible fees and understand exactly what you’re agreeing to.
Maintain a Strong Factoring Relationship
You’ve done your research and chosen a freight factoring partner. You need to do your part to maintain a strong factoring relationship.
- Submit invoices consistently and quickly. Don’t wait weeks to submit a bill of lading for payment.
- Make sure your paperwork is complete and includes the bill of lading, rate confirmation, and other pertinent information that helps process payment requests quickly.
- Stay on top of issues that slow payments down, such as a client disagreement, and make sure you communicate with your factor to get things addressed as quickly as possible.
- Use free business credit checks to ensure you’re choosing jobs with reputable brokers and shippers.
- Look over your freight factoring agreement from time to time to ensure the terms still meet your needs. As your trucking company grows, you may need to negotiate a new contract.
In addition to maintaining a strong relationship with your freight factoring partner, don’t start ignoring your clients. Reach out to them regularly to ensure they’re happy with the service they’re getting.
Forming a Strong Partnership With a Freight Factoring Company
Your freight factoring company is more than someone who pays you in advance. They’re a financial partner in your business’s growth. To ensure your cash flow is as strong as possible, you need to look for a freight factoring company that offers additional benefits like these.
- Unlimited free business credit checks to check the financial risk of new brokers and shippers.
- Office support with invoicing and bill collections.
- User-friendly apps that help you track incoming payments, the status of payment requests, and the ability to submit payment requests when you’re on the go.
- Fuel discounts that offer savings on every gallon of gas or diesel you put into your trucks.
- Fuel advances where you get money to use on fill-ups before you deliver a load.
- Access to load boards that help you find work when you have extra room on a trailer or are in a slow period when your clients don’t have enough work for you.
Benefits, rates, and fees are just a small part of finding the best freight factoring partner. You need a factoring partner who also meets these checklist items.
- A strong reputation with other trucking company owners or owner-operators.
- Decades of experience in the transportation industry.
- A strong customer service team who are available when you need them.
- Upgraded technology with user-friendly apps and websites that provide features designed to keep your business moving, such as GPS and tracking.
- Flexible terms that don’t lock you into a contract that doesn’t match your business’s needs.
- Substantial fuel discounts that help you cut your expenses.
Negotiate the Best Factoring Arrangement for Your Needs
Freight factoring helps trucking companies avoid issues caused by an inadequate cash flow. Make sure you understand a freight factoring agreement, the rates you’re going to pay, and any requirements expected of you before you sign. Ask questions until you fully understand your obligations and what you get in return.
Since the 1990s, Saint John Capital has helped so many trucking companies and owner-operators find financial freedom using strategic freight factoring arrangements. We offer competitive rates, impressive fuel discounts, and more. Reach us online or by phone to learn more.
