The Federal Reserve announced there’s another rate hike happening. Interest rates will go up another quarter percentage point bringing the federal funds rate to 4.75%. This is the eighth straight increase that the decision-makers at the Federal Reserve have ordered.
National interest rates are determined by the Federal Open Market Committee, a committee made up of 12 people, seven governors of the Federal Reserve Board and five presidents of the Federal Reserve Bank locations across the nation, including bank presidents from one of these areas: Atlanta, Boston, Chicago, Cleveland, Dallas, Kansas City, Minneapolis, Philadelphia, Richmond, and San Francisco.
What makes them keep raising the rates? Eight times a year, they meet to analyze the nation’s economic standing and take actions that best benefit the country. After discussing potential measures, they vote on the best action to take. When the economy is struggling, the action is usually to increase interest rates in order to slow consumer spending. If consumers don’t buy as much, it lowers demand and gives companies time to build up supplies again.
Increased Rates Can Do More Harm Than Good
The problem is that increased interest rates can also push an individual or business that is already struggling financially into financial collapse. There is a chance that increased interest rates can also increase the risk of foreclosure, bankruptcy, and delinquencies on many typical bills. The trickle-down effect caused by unpaid loans and bills can be just as detrimental and trigger another recession.
This is where it gets tricky. If you own a business and have any adjustable-rate or variable-rate loans or credit cards, your payments increase every time the rates increase. You’re now stuck with higher monthly payments, and you may not have an increased income to help cover the increase. You have to raise your rates, which can cost you some of your clientele, especially if your competitors don’t also increase their rates.
It’s also going to take a lot of work to get loans. If your trucking company is still growing and you need a loan for a new truck, it’s going to cost more. As the nation edges towards a recession, banks may start becoming very cautious when it comes to underwriting guidelines. Businesses with excellent credit scores are in good shape, but those without a high credit rating may find themselves being turned down. If you need money and can’t get approved for a loan, it may destroy your business or push you into risky moves like using credit cards with extremely high interest rates more than you’d planned.
There Is a Bright Spot, Too
While interest rates increase, this also can benefit trucking companies if your business is turning a profit. Invest your revenues in money market accounts and CDs as the rates for those also increase as interest rates climb. The only downside is that any CDs you’ve already purchased are locked in at the old rate, and it can be costly to break the terms and reinvest.
What Should You Do?
Before you panic, take a closer look at the business credit cards and loans you currently have. If you have an adjustable-rate business loan, look into a fixed-rate loan. While rates are higher now, no one knows how much higher interest rates will go.
Back in 2020, the Federal Reserve said interest rates would be held at near 0% for at least three years. That didn’t happen. In 2021, they said two interest rate increases would happen by the start of 2024. We’re now at the eighth increase, and they predict more are to come.
If you have credit cards that are carrying a balance, talk to the companies to see if they will lower your rate to match the promotional rates they’re offering to new customers. If not, it may be time to apply for a different business credit and take advantage of promotional interest rates. Once you have them, do everything possible to pay off the balance as much as you can before the promotional rate ends.
Take on additional clients to boost your revenue if you can. Saint John Capital has a load finder in the freight factoring app we offer. Use it to find loads in your area. Sort by price, destination, or size, and use the free business credit checks to determine how reliable a company is before you accept the job.
Get Paid ASAP
Most importantly, make sure your clients pay you on time. When they pay you quickly, you can pay your bills on time. Don’t risk non-payment if they find themselves falling behind during these challenging financial times.
If you deliver a load and have to wait weeks or months to get paid, you need to find a better way. Saint John Capital is a freight factoring specialist who deals specifically with invoice factoring for trucking companies. Our factoring rates are the lowest you’ll find, which puts the majority of the money you’re owed into your hands. We advance the money you’re owed, minus a fee, and take over collecting the money from your client. Here’s how it works.
- Pick up or deliver a load as directed by your broker or shipper.
- Use the Saint John Capital app to submit your bill of lading for payment.
- Saint John Capital approves your payment request and sends the payment that’s due to your bank or fuel card.
- You receive the payment, minus an invoice factoring fee, to your bank or fuel card and have that money available to use immediately.
- Saint John Capital generates an invoice that goes to your client, and you can upload that invoice to your accounting software.
- It’s our job to chase down your client to get paid if they haven’t paid on time, which frees up your staff’s time to work on other important office tasks.
- You have the money that’s due and can pay your bills and keep working.
This leads to one of the most common questions we hear. What happens if the freight factoring company doesn’t get paid? The answer depends on what type of factoring agreement is set up. Some companies use recourse factoring arrangements. This means that if a client doesn’t pay after a set period, the factor will come back to you for repayment of the money you were advanced.
There are also non-recourse factoring arrangements. In our opinion, these are better. If the client or shipper fails to pay the amount due, the factoring company takes the loss. Typically, they will either take the client to court for the unpaid debt or sell the unpaid invoices for a fraction of the amount due to a debt collection firm. The debt collector then does whatever it takes to get paid.
Saint John Capital uses non-recourse agreements. We also can work with you to either pay you when you pick up a load or when you deliver it. Our arrangements can pay anywhere from 50% of the money due if you send the bill of lading after picking up the load to 100% for a bill of lading that’s sent after the load has been delivered. You’ll just pay the low factoring fee that starts at 1%. The factoring fee depends on how many trucks are in your fleet. Call our freight factoring advisors to learn more about the fees for the number of trucks in your fleet.