Trucking company owners or owner-operator businesses have two key options. You can work for a broker or shipper using long-term contract rates or spot rates. Spot rates are a one-time price used to move freight. As it’s a one-time job, rates are often higher than with a long-term contract, which makes them desirable.
Spot rates also have a downside. It’s one job, so you need to continually line up more spot rate jobs to ensure your business has the money it needs to stay solvent. Getting paid on time when you don’t have a contract is often challenging. That’s where invoice factoring comes in.
Understanding Spot Rate Loads
One of the main problems with spot rate trucking is the difficulty in building a steady cash flow. You’ve never dealt with a broker or shipper before, and you cannot be 100% certain that they’ll pay quickly. If there’s a lapse, it’s hard to pay for fuel, truck repairs, maintenance, wages, and other monthly expenses.
Invoice factoring becomes a strategic tool for spot market truckers. It provides a steady cash flow. You avoid relying on high-interest credit cards or line of credit business loans. You have money in your hands for your expenses. That helps you maintain a high credit score, which brings additional benefits if you ever need to borrow money to afford new trucks, trailers, flat beds, or other trucking equipment.
A Strong Cash Flow Is Vital
It’s not a guarantee, as it depends heavily on the trucking market, but in a tight market, spot rates tend to be higher. As costs increase, you might find that the brokers and shippers you’re working with take longer to pay their bills. I
To ensure you have the funding needed to pay for fuel when you’re on the road, cover truck maintenance and repairs, and afford bills. You can’t hold off paying things like electricity, utilities, subscriptions, wages, cell service, insurance, licenses, etc. Having money available is important.
While some trucking companies opt to charge these expenses on a business credit card, it’s not always a wise move. The average business credit card interest rate is 21.5%. The interest owed builds up quickly. If you can’t afford the insurance plus the charges you made, you end up with too much debt.
Among the top reasons trucking companies fail are:
- Insufficient cash flow
- Increasing fuel, insurance, and repair/maintenance costs
- Too little capital
Build a strong cash flow with the help of a freight invoice factoring partner and avoid the common pitfalls.
Factoring Isn’t a Loan
When you work with a freight factoring partner, it’s not a loan. It doesn’t affect your credit score. It’s a financial partnership where you take an unpaid invoice, sell it at a discount to a factor, and get paid immediately.
The discount, also known as the factoring rate, depends on your specific situation. It’s based on how many trucks are in your fleet and how much work you do each month. The more invoices you submit for immediate payment, the lower your rate.
It also depends on whether you want a recourse or non-recourse agreement. Recourse is cheaper, but it has more risk.
- Recourse: If the client doesn’t pay the invoice, you must return the money you received.
- Non-Recourse: If the client files bankruptcy or abruptly shuts down due to financial hardship, you’re protected and don’t have to repay.
Non-recourse arrangements are a smart idea when you’re taking one-time jobs as a spot rate trucker. You do have the benefit of business credit checks to verify a company’s payment history, but those only help determine risk; they’re not foolproof.
Once you negotiate an invoice factoring rate, you start driving loads and sending bills of lading to your factoring partner for immediate payment. You have money to cover expenses and can take on more work.
Because factoring is not a loan, you also don’t have the impact of another loan on your business credit score. Just as you look at the credit report of a broker or shipper you’ve never worked with before, they’re also looking at your credit score. The higher it is, the more likely you are to get more work.
The more work you do, the more money you have to invest back in your business. You can buy new trucks, hire more drivers, and keep growing.
Freight Factoring Doubles as Office Support
An invoice factoring partner also takes a lot of the work off your shoulders. Owner-operators are busy on the road and don’t have hours to spend calling clients to find out when the payment can be expected. They can’t spend time scouring job boards to find more work. Every hour spent in the office is an hour you could have been on the road making money.
As you send the bill of lading through an app or website, you don’t need office staff generating invoices, mailing, faxing, or emailing them, and then going to the bank to deposit checks when they arrive. It frees up time for important tasks like efficient route planning, social media and website upkeep, and finding other spot loads.
You also don’t need to have your office staff continually researching area gas prices and hunting for the cheapest fuel. With fuel cards and gas or diesel discounts, you save money on all fill-ups.
The other benefit for your office staff is the load boards that many freight factoring companies can access. Find all the work you need without having to search multiple places. If the factor you choose doesn’t have a load finding app, one that specializes in trucking can direct you to solid choices.
Choosing the Right Freight Factoring Partner
Choosing the right freight factoring partner for your trucking business is not something to rush. Take time and ask several factoring companies these questions:
- Do you offer no reserves?
- Do you offer non-recourse factoring?
- What is your factoring rate for a company of my size?
- Do you charge for credit checks?
- What is the ACH fee? Are there other fees I should expect?
- Do I have to factor every invoice, or can I choose?
- How quickly can I get paid?
- What additional services are available?
Ideally, you want a freight factoring partner with low fees, same-day payments, and 100% advances. Also, check the company’s expertise. An invoice factoring company may not have the specialized experience of a company that only offers freight factoring to people in the transportation industry.
Saint John Capital has been helping trucking companies grow for decades. We offer some of the lowest rates in the industry and same-day payments. Plus, our 100% advances ensure you get everything you’re owed, minus the fee, and don’t have to wait for the balance. Fill out the online form to get started.
