Transportation management systems are a must-have for any busy trucker. Whether it’s software on your computer or an app on your phone or tablet, a TMS is your on-the-road office worker. It helps you track your miles, load miles, and breaks, and stores bill of lading (BOL) documents. It also helps you map your routes, compare rates, and track your trucks in real time.
You planned the most efficient route, got the job done faster than estimated, and now you’re waiting for cash to hit your almost-maxed-out fuel card. You can’t pay this month’s insurance unless you charge it to your business credit card or line of credit. You can’t pay for the repairs your truck needs. You’re sidelined until you get paid.
The trucking industry relies heavily on one thing – cash. You can’t get your job done without having the money to pay for fuel, food on the road, and truck maintenance and repairs. The problem is that the money you’re owed may not arrive for several weeks or months. That’s where freight factoring comes in.
Understanding Freight Factoring, TMS, and the Connection Between Them
Freight factoring is a financial partnership between your trucking company and a factor. It’s an arrangement in which you receive cash advances against the amount a broker or shipper owes you. Instead of invoicing your client, you send the bill of lading to a factor, who generates the invoice on your behalf and advances you the money due. You pay a small fee (factoring fee) for this service.
The factoring company waits for your client’s payment to arrive. They extended you the cash advance minus the freight factoring fee, which is usually no higher than 5%. They get repaid the full amount when your client pays them.
The fee you pay depends on the amount of work you do each month, how many trucks are in your fleet, whether you want recourse or non-recourse factoring, and other personalized decisions like those.
While you do pay the factoring fee, it also helps reduce some of your monthly costs. You don’t have to spend hours chasing payments anymore; the factor does it for you. You don’t have to spend hours sending out invoices.
A transportation management system (TMS) is a logistics app or software that helps you:
- Analyze rates
- Book loads
- Dispatch drivers
- Ensure compliance and documentation
- Execute seamless pickups and deliveries
- Manage and store documentation
- Optimize loads
- Plan and optimize routes
- Run and view reports
- Track truck locations in real-time (GPS tracking)
TMS usually integrates with accounting software like QuickBooks. Many freight factoring companies also offer apps that integrate with TMS systems. You want to choose a factor that offers complete compatibility so that you don’t have to transfer documents from one system to the other.
A Breakdown of TMS and Factoring in Action
Take a closer look at how freight factoring and TMS help busy truckers.
You just dropped off a load and pulled up your TMS dashboard to scan the “Find Loads” tool so that you’re driving the 300-mile return trip with an empty trailer. You spot a job paying $1,500. Looking at your freight factor’s TMS, you see that there’s a green check or dot near the broker or shipper’s name. You know they’re already approved, so you can quickly claim the job before your competition does.
You’ve arrived on time thanks to flawless route planning. The TMS has GPS settings that automatically track your location and mark that you’ve picked up the load.
Along the way, you were able to use the system’s route planning software to find the best truck stops and reroute around road closures. You arrive at the destination. Again, your TMS tracks your location and marks you as having arrived.
Your trailer’s empty, and you have the signed BOL. Take a photo of it and send it immediately to the freight factoring company for payment through the TMS app.
Your factor reviews the BOL, the broker or shipper’s status, and approves your payment request. It’s then submitted for payment to your account. You often have the money the next day. If you’re done with the job before noon EST, you might even get paid later that same day.
Because you have funds much faster than usual, you can immediately top up your truck again and get back out on the road. Continued work helps you maximize your income. When it’s time to reconcile your accounts and handle estimated taxes or year-end tax returns, the paperwork is stored in the cloud for easy retrieval.
Tips for Choosing the Best Factoring Partner
Finding the right freight factoring partner is important. Some companies are better suited to certain trucking companies than others. The freight factoring fee is important, but it’s not the only thing to consider.
1. Be Ready With a List of Questions
Have a list of questions that help you narrow down your options. You should ask:
- How responsive is customer service? What about after-hours or on weekends?
- What are your fees? What about hidden fees?
- Do you have minimums? If I miss the minimum during a slow month, what is the penalty?
- If I sign up and don’t feel you’re the right fit, am I locked into a contract? What’s the penalty for leaving a contract before the time is up?
- What happens if a client pays later than promised?
2. Additional Services Beyond Fast Payments
Fast payments help you stay busy and bring in more money. You also benefit from factoring companies that offer additional services. Make sure you’re choosing a freight factoring company that provides:
- 100% cash advances
- A trial period to ensure the company is a good fit
- Click & Pay API
- Competitive rates
- Fuel discounts
- Live credit checks
- No hidden fees
- TMS Integration
- Transparent pricing
3. Ask About Non-Recourse Arrangements
Make sure you consider the pros and cons of a recourse vs. a non-recourse arrangement. Recourse arrangements offer a lower factoring fee, but you lose protection. If your client doesn’t pay, you’re responsible for repayment of the money you were advanced.
While TMS offers some protection by making it easy to find trusted brokers and shippers without major red flags in their credit history, it’s not foolproof. Non-recourse arrangements have higher fees, but they can protect you.
We’ve watched many long-running trucking companies shut down in the past few years. Some came as a complete surprise. Non-recourse arrangements protect you from having to repay those invoices.
There are caveats, however, such as bankruptcy or sudden, unexpected closures being acceptable reasons for repayment. You’re not protected if the client feels you damaged goods or arrived much later than expected.
A Long History in Freight Factoring
Saint John Capital specializes in factoring for trucking company owners. Our company was founded in 2009 to help trucking companies and independent truckers grow their businesses through timely payments.
We’ve grown a lot since then. We adhere to the IFA Code of Ethics and offer some of the industry’s lowest factoring rates. We were the first factoring company to join the Blockchain in Transport Alliance. Give us a call to get a quote and see how convenient same-day payments are.
