Freight factoring involves partnering with a factoring company to sell your invoices for loads you’ve hauled. The factoring firm pays you all or some of the amount due and chases down payment from the shipper or broker for you. It makes it easy for you to get compensation quickly. With the money in hand, you can pay your drivers and office workers and focus on taking more loads instead of spending time reaching out to brokers who don’t pay on time.
Despite the benefit of freight factoring, people have heard and wonder if these freight factoring myths are true. Here are some of the most common myths that people hear, which can keep them from taking a closer look at factoring their invoices.
Only Companies That Are Struggling Financially Need Freight Factoring Services
If you’ve heard that freight factoring is for companies struggling financially, you’re not alone. It’s not true, however, as freight factoring can help businesses get paid quickly whether they’re just starting out or have been working in the industry for decades.
A struggling company will undoubtedly benefit from factoring their invoices, as it puts cash in their hands sooner rather than later. But, it’s just as beneficial for a company that has years of experience and doesn’t want to have to hire extra staff to create invoices, follow-up with brokers and shippers, and spend hours trying to collect on overdue invoices.
Freight Factoring Is Unaffordable
Because freight factoring involves a fee, people assume it’s unaffordable. Consider this, you could hire a factoring company and pay a small percentage to have them collect payments and give you a cash advance right after you deliver a load or wait weeks or get 100% of it, but risk waiting weeks or months to get that payment.
While you’re waiting, you have frustrated drivers because you can’t afford to pay them. You can’t afford the fuel or truck repairs needed to take more loads. Or, you want to grow your business, but you need the extra income, and your brokers aren’t paying you as quickly as you’d like.
What’s unaffordable is to have drivers quitting because you’re not paying them consistently or their trucks keep breaking down, and you can’t afford the proper repairs. Factoring can genuinely help you ensure your workers are happy and you have a steady flow of cash.
Different factoring companies charge different percentages. Some companies may charge more than others, but you can shop around and find the best rates. Ideally, look for factoring companies that charge flat fees and provide 100% advances.
There Are Always Hidden Fees
People worry about hidden fees. While some factoring companies may hide fees from you, not every company does. Look for a freight factoring firm that has flat rates and no hidden costs. If a company charges subsequent fees, find a different firm. Ask about bank fees for ACH and wire transfers. If there are programs you can use to avoid these banking transactions, you avoid high banking fees.
While it’s not exactly a fee, some factoring companies will require you to pay them back if your broker fails to pay an invoice after a certain amount of time. Be very careful accepting a recourse arrangement, as it can mean having to spend a lot of money that you weren’t expecting to owe.
See if the factoring company has a debit card program. You can get their debit card, have payments go right to the card, and use that card for repairs, fuel, and other business expenses without worrying about your bank’s hidden fees.
You Must Be an Established Trucking Firm to Work With a Factoring Company
New trucking firms are welcome to work with a factoring company. This myth often scares new trucking companies away, and it’s a shame. One of the most significant benefits of freight factoring is that you get your money in a hurry, making it possible to grow your business faster.
Many freight factoring firms pride themselves on helping new trucking firms grow. By getting the cash upfront, trucking companies can schedule more jobs, bring in more income, and grow their fleet faster than if they waited until their brokers settled up without help.
Factoring Companies Hold Some of Your Funds Hostage Until Your Clients Pay
Some companies do hold some of your money until the broker pays the invoice. Not every company does, however, so you’re not stuck with this arrangement. You just need to shop around and find a company that offers 100% advances.
How do you know how much of your invoice is going to get paid? This is one of the crucial questions to ask when learning more about freight factoring. Some companies pay 80% to 95% of your invoices and hold the rest in reserve until the invoice is paid. They should be upfront and provide this information. If they don’t, ask. It’s in your favor to work with a company that pays 100% of them.
Imagine these two scenarios. Your broker owes $10,000, and you’d like to add a new truck to your fleet and double your potential income. There’s a truck you can afford, but you’d like to have 10% down to secure the loan. You could work with one freight factoring company that only allows you to have 80%, and get $8,000 right now, which may mean missing out on the truck. Or, you could work with a firm that offers a 100% cash advance, have the entire $10,000, and secure the sale with the full deposit.
Brokers Won’t Work With Trucking Companies That Use Freight Factoring
Even if this myth was true, you have to ask yourself if you’d want to partner with a broker that refused your business because you simplify your office work by using freight factoring. If a broker is that afraid of paying its bills on time, why would you want to take jobs with them?
As long as you’ve chosen a reputable factoring company that builds strong relationships with different brokers, you’ll find brokers enjoy working with the same person on billing and payments. Look for companies that only factor trucking invoices. You want to choose a firm that is a member of the International Factoring Association and has many years of experience helping new and established trucking companies.
All Factoring Companies Are the Same
So many people believe that all freight factoring companies are the same, which couldn’t be further from the truth. Just as no two banks are alike, factoring companies are also different.
Every factoring company sets its factoring rates, with the average range between 1% and 5%. Some charge a flat fee, while others charge a base rate plus upwards of 0.5% every week a client is late paying the invoice. If you have a client that pays a month late, you’re adding another 2% to the base rate, and that gets costly.
Some have fees added on top of the factoring rates. These fees may be bank charges or fees for not submitting a certain number of invoices each month. You don’t have to accept an agreement with a factoring company that has a minimum quota. You need to decide if you can meet the minimum or if the fee you face for missing the quota is acceptable.
Saint John Capital charges a flat rate based on the number of trucks in your fleet. Pay as little as 1% for a fleet of 11 or more trucks or as high as 1.95% for fleets of one or two trucks. We also offer free credit checks to help keep your costs to a minimum. It’s easy to open an account. Fill out the online form, and we’ll be in touch.