No matter how large or small your trucking company is, prompt payments are everything. With bills and wages to pay every week or two, a strong cash flow is important. Waiting 30, 60, or even 90 days for clients to pay outstanding invoices weakens your cash flow.
Freight factoring solves your issues by providing immediate cash. Get paid fast and let a freight factoring company take over invoicing and collections. It’s a simple solution, but there are hundreds of factoring companies out there.
How do you find the best freight factoring company for your needs? Our guide covers what you need to look for to ensure you find a factoring partner that matches your business’s needs.
Contract Terms and Flexibility
The wrong freight factoring contract impacts how successful your arrangement is. You don’t want to sign the contract and learn it’s not as flexible or beneficial as you hoped. The most important factors to consider are:
- Client Invoicing: If you choose to use a specific freight factoring partner, are you required to let that factor handle every client you work with? Can you pick and choose while invoices go to the freight factoring company and which don’t?
- Contract Length: If it’s not a good fit, are you stuck in the contract for several months or years? Is there a long-term commitment, and if there is, are you prepared to stick it out? Ideally, you want a contract that is flexible with month-to-month or absolutely no long-term commitment.
- Minimum Volume: Sometimes, freight factoring companies require you to meet minimum loads each month. If you don’t meet the minimum, it’s costly. Avoid contracts that require a minimum volume, especially if you have seasonal slow downs or only want to use factoring for certain clients.
- Termination Fees: If you are locked into a contract with a specific length, what are the termination fees if you end your contract early. You don’t want to pay them at all, but if you do, they need to be low.
Choose a freight factoring partner that provides you with freedom to run your trucking company your way. You shouldn’t have to give over all control of your company to the factor, and a good partner in freight factoring understands that.
Fees and Pricing
While the right contract is vital, freight factoring fees and additional costs are equally important. If you’re uncertain exactly how much factoring is going to cost, you shouldn’t sign the contract. Factoring fees are set up in different ways, and that makes it easy for unethical factoring companies to hit you with hidden fees.
Types of Factoring Rates
A freight factoring fee is a percentage of the amount due on the invoice. While the rate varies from one company to the next, most freight factoring fees fall into the 1% to 5% range.
The actual fee is dependent on how many trucks in your fleet, how many invoices you send to the factor for immediate payment, your client’s credit score, and whether you sign up for recourse or non-recourse factoring. There are also flat rates and variable rates to consider.
- Flat rate – The fee is a fixed percentage that doesn’t change, no matter how long it takes your payments to pay. You know exactly what the fee is, no matter what happens.
- Variable rate – Rates start low but increase if your client doesn’t pay the invoice by the due date. You don’t know exactly how much you’re paying until your client pays, which means the rate could be much higher than you expected.
Some of the Common Hidden Fees
Hidden fees aren’t something you’ll encounter with every freight factoring company, but some of the less ethical ones do surprise clients with hidden fees. Make sure you’re told upfront if any of these fees are charged.
- Application fee that’s charged to get your account set up and active.
- Business credit checks cost extra if you exceed a limited number each month.
- Monthly minimum fee that’s charged if you do not send enough invoices to the factor in a month.
- Watch out for extra charges that can sneak up on you. Always ask about:
- Transaction fees are charged for every payment request you submit through the factor’s app or website.
- Wire (ACH) fees are charged when you request to have money transferred to your bank account.
Fast, Convenient Funding Options
You’re signing up with a freight factoring company to get same-day or next-day payments. For this to happen, you need convenient funding options. The good news is that technology simplifies the process, but you need a factoring company that uses technology for fast funding.
Make sure that you can submit bills of lading through an online app that’s available on the go. You also want to be able to see the status of your payment requests and know exactly when money is being paid. You want to see how much money you have available to use when you’re on the road.
See when payments are processed. Some companies offer 24/7 processing, while others take bank holidays and weekends off. Find out what the payment schedule and hours of operation are before you commit.
Recourse and Non-Recourse Factoring
Have you thought about what happens if your client fails to pay an invoice? You could be responsible for repayment if you haven’t protected yourself.
- Recourse: While you get lower fees with a recourse factoring arrangement, you also must repay the money you received if your client doesn’t pay. The money that you received is taken from future payments or your current accounts.
- Non-Recourse Factoring: You pay more for a non-recourse arrangement because it’s a form of insurance. If your client doesn’t pay due to bankruptcy or a business closure, you’re protected from repayment. The freight factoring company takes the loss.
Customer Service and the Company’s Itself
You’re choosing a partner in your business’s financial arrangements. You need to make sure you can trust that company. Here are a few things to consider.
- Does the company offer free credit checks to help you choose reliable clients? Unlimited free credit checks are best.
- What industry experience does the factoring company have? If they aren’t specialized in the trucking industry, they may not have the expertise needed to help you maintain a strong cashflow.
- What do other trucking company owners say about the factoring company? You want to look for common complaints or praise involving fees, additional services, and customer support.
- How does the company offer support when you need it? Do you have to deal with an AI chatbot, or can you talk to a real person? Is email or text support offered and more convenient for you? If you need bilingual support, is it available?
Additional Services or Perks
Fast payments are ideal, but your business thrives when you receive additional services as part of the overall arrangement. Some of the best perks to look for when you’re researching freight factoring are:
- Business line of credit offers with low interest rates and instant approval.
- Click & Pay API that makes it easy to ask for payments, handle bookkeeping, and track your balance in real-time.
- Fuel cards with discounted prices on gas or diesel.
- Help finding discounted insurance plans for your trucks.
- Job finding (load) boards that help you find more clients without having to pay for your own subscription.
We Partner With You for Success
Since 1997, Saint John Capital’s priority has been to help trucking companies of all sizes succeed. If your goal is to grow from a small owner-operator trucking company, we can help. If you’re an established company with more than 10 trucks, we’re also here to help you achieve all your business goals. Reach out today and let us know how we can help.
