Freight factoring is a vital service for maintaining your cash flow as a trucking company. While you might have plenty of work, you have to wait for your clients to pay what’s owed. If they only pay once a month or pay later than expected, you need the cash flow to cover necessary expenses like gas, rent, truck loans, maintenance, utilities, wages, insurance, etc. Floating those expenses on high-interest credit cards is not a good idea.
With a freight factoring agreement in place, you submit each bill of lading you want to get paid for. The factoring company approves it and pays you what you’re owed, minus the factoring fee which is usually no more than 5%. It’s a lot better than credit cards which can be upwards of 20% or more if you have a low business credit score.
Successful freight factoring does require a little planning. What are the best tips for maximizing a freight factoring arrangement?
Pick a Freight Factoring Company That Best Matches Your Needs
Stop and ask yourself these questions.
- What are my goals when it comes to getting paid? Do I need same-day payments or can I afford to wait a few days?
- Would other services like load-finding software, free business credit report access, and fuel discounts help me run my trucking business more effectively?
- How much can I afford to pay in fees? Does my bank charge any additional fees that I should be aware of?
- If I sign up with a freight factoring company, would I have clients I don’t want to include? Is that allowed with the different factoring companies?
Once you have those answers, you need to start comparing freight factoring companies to see which companies come the closest to them. You might not find the ideal match, but you want one that comes the closest. While you’re narrowing down your choices, look at the company’s experience, too. A company that has been in business for a year isn’t as proven as a company with 20 years of experience in factoring.
What Percentage Are You Okay With?
Freight factoring companies take the bill of lading or invoice you send and pay a part of it. Some companies offer 100% factoring advances, but others will only pay you 90%, 95%, etc. You get the balance when your client pays the invoice.
What advance would you want? Do you want to have everything owed at once, minus the fee of course, or are you okay with 90%?
Understand the Fees and Ask Questions if Anything is Unclear
Freight factoring isn’t free. There is a minimal fee for the service, but it’s not as high as a credit card interest rate and usually falls in the 0.5% to 5% range, depending on the number of trucks in your fleet. The more bills of lading you submit for factoring, the lower the fees are.
Some companies offer a lower variable factoring rate for the first month, but if the client hasn’t paid in that month, a fraction of a percent is added for every 10 or so days over it. You might also face these fees.
- One-time application fees when you enroll with a factoring company
- Set-up fees
- Fees for credit checks
- Processing fees
- Due diligence fees that secure your spot with a factoring company
- Wire transfer fees
- Late fees
- Customer service fees
- Minimum volume requirement penalties
- Cancellation fees
There are rules that parallel these general factoring rates. There are several kinds of arrangements. A non-recourse factoring arrangement means that you won’t have to repay the cash you receive if your client never pays. Recourse means you will. Some arrangements are a mix of the two. You have to repay a certain percentage of the money owed, but the rest is the factoring company’s responsibility.
Keep Track of Your Invoices
When you submit bills of lading, keep track of them. As they’re processed by the factoring company, it’s up to you to print out or save the invoices they’ve generated. If they don’t offer that service, you need to do it and make sure your accounting software is updated daily.
As the cash advances roll in, verify that the fees that were deducted are what you expected. If you spot any extra fees that you weren’t expecting, ask what they are. Anyone can make a mistake, so you want to make sure you have any errors corrected as soon as possible.
Use the Money Wisely
You’re getting paid quickly, so make sure you use it wisely. Don’t fall into temptation where you splurge on unnecessary items when you get a flood of cash. Your computers are only a year old. They run well, but they’re not as fancy as newer technology. You don’t really need the upgraded equipment yet.
Instead, use the money to grow your business. Invest in newer trucks with better fuel efficiency and operating costs. Pay down debt. Save some for a down payment on a larger space with your own mechanic bays and avoid having to reserve a slot with a local mechanic.
Set some of your money aside for emergencies. Build up a cash store to cover unexpected expenses like blown tires and breakdowns or storm damage that insurance doesn’t cover.
Stay in Touch
Reach out to your freight factoring company often. Make sure things are going well, and that you’re not missing anything when you submit bills of lading to them. Ask if any new services might be advantageous.
The more contact you have with your factoring company, the easier it is to identify possible issues in the earliest stages. You might learn that one of your clients is paying invoices regularly a week after the due date. This is something you could reach out to your broker or shipper to see if there’s a problem that you’re unaware of.
Take Advantage of Any Additional Services
Many freight factoring companies provide a range of other services that can be beneficial. If there are services you feel will help you run your trucking company efficiently, sign up for them. These are a few of the additional services Saint John Capital provides.
Free Business Credit Checks
Run free credit checks on companies you’re considering working with. If there’s a high-paying job on a load-finding app, but you’ve never worked with the company before, you should check them out first. Do they pay on time or are they in debt to a lot of trucking companies?
Load Finding Software
Finding more work is a great way to grow your revenue and build your trucking company. With Saint John Capital’s load-finding app, you can browse millions of jobs and sort by location, rate, or size.
Track Loads App
Once a driver is on the road, tracking apps help you stay updated on the driver’s location. If there are weather issues, you can check maps before your driver reaches that area. Plus, you’ll have real-time information to share with customers who are waiting for their load to arrive.
Saint John Visa Card
The Saint John Capital Visa is a mobile-friendly card that doesn’t require you to have a personal credit score. Use it to get fuel right at the pump and pay for items at truck stops and convenience stores. You can use your mobile phone to check the balance and verify that purchases went through correctly. Plus, you can qualify for special perks like same-day payments if you have this card.
Business Line of Credit
If you need funds for new trucks, the interest rates on Saint John Capital business lines of credit are favorable. Make weekly payments to get any money you borrow paid back on time, which is a great way to boost your business credit rating.
Are you ready to learn more? Saint John Capital is happy to answer your questions via email or phone. If you want to get started today, fill out a quick form with your contact information, name, trucking company name, and MC number.