An estimated 7 out of 10 trucking companies rely on freight factoring to maintain a steady cash flow. Despite this, there is a misconception about who freight factoring helps. It’s a service for any trucking company, broker, or shipper who is tired of juggling bills until a client pays up.
The reality is that freight factoring is one of the wisest decisions a company owner can make. It’s one that comes with an abundance of benefits, making it the smart business move for even the largest carrier.
How a Freight Factoring Partnership Aids Business Management and Growth
A freight factoring partner does so much to help you with business management and growth. It’s not a costly or difficult service either. Factoring rates depend on the number of trucks in your fleet, but it’s still unlikely you’ll pay a fee of more than 5%. The benefits you gain well exceed what you pay.
1. Benefit From Fuel Discounts
You’re not delivering loads without filling the fuel tank. Gas and diesel are two of your biggest expenses, and prices have skyrocketed in the past month or two. That dollar more you’re paying per gallon is quickly eating into your profits.
Freight factoring comes with per-gallon discounts that add up quickly. With just a 10-cent discount per gallon, 100 gallons of fuel means you’ve saved $10. If you’re fueling up five times a week, that’s $50 saved each week or $2,600 a year. And that’s just assuming you have one truck getting 100 gallons each day.
2. Claim “Early Payment” Discounts
Another big expense for a trucking company is truck repairs and maintenance. Tires wear out after hundreds of miles on the road. Wiper blades, bulbs, brakes, oil filters, and oil all decrease your profits. Some vendors offer early-payment discounts.
Suppose you need tires, and your vendor offers a 3% discount if you pay your invoice within a week. It’s possible when you have a strong cash flow.
Freight factoring pays as quickly as the same day. It frees up the cash you need to pay your vendors early, giving you that discount. In some cases, the early-payment discount matches or exceeds the freight factoring fee, so it’s an extra win.
3. Consolidate Your Cash Flow
Managing your fleet means you’re keeping track of the different payment terms, paperwork requirements, and account portals. Some of your clients pay every 30 days, others require NET 60 terms. If you have 10, 20, or even 30 clients, it’s a lot to juggle.
With freight factoring, you consolidate all accounts into one income stream. You do the work and submit the bill of lading to the factor. That company pays you and handles the rest. Payments go to your single account from a single source. You’re not watching the mail, double-checking that you haven’t missed an email, and continually logging into a portal to check a status.
4. Draw Driving Talent
It’s expected that California will pull the commercial driver’s licenses of 61,000 truck drivers. New York has approximately 32.600 non-domiciled CDLs. Finding and keeping driving talent is getting harder. Competition is fierce.
When you’re unable to match another company’s wages and benefits, you’ll struggle to find enough truck drivers for the work that’s available to you. You’re turning jobs down, and it’s impacting your profits.
Same-day payments give you a competitive edge. Instead of paying your drivers every other week, pay them weekly or even on the day you get paid. Offer unique payment options like Apple Pay, PayPal, or Venmo. Consider providing on-demand pay through services like DailyPay or Tapcheck.
5. Embrace Same-Day Funding
Wait-and-see financial approaches don’t work well. You have mounting bills, no money coming in, and you’re stuck putting expenses on a credit card or swallowing late fees. The damage to your credit report isn’t quickly fixed. It can take years to undo the damage.
Same-day funding through a freight factoring company gives you the money in hand to cover all expenses. You don’t pay extra with high credit card interest rates. You no longer must deal with late fees of $20, $25, or more. Your credit report isn’t affected at all, as it’s not your credit score that matters in freight factoring.
6. Expand Your Fleet Without Debt
Buying used or new trucks and trailers isn’t cheap. A new Peterbilt sleeper is in the $208,000-$225,000 range. Even new light-duty cabs start in the $80,000 range. A used 2021 Peterbilt is around $50,000. Prices of used trucks increase from there. That’s just the truck.
The interest you pay to build your fleet gets expensive. Instead of taking out another loan, set aside the savings from fast payments. Tuck that money into a high-interest account and pay cash for new-to-you trucks and trailers.
7. Leverage Credit Reports
Any time you agree to work for a new broker or shipper, you’re taking a risk. You need to do your research to make sure there’s no double-broker scam at play. You have no guarantee they’ll pay on time or at all.
Freight factoring partners offer free business credit checks. Before you take a load, you can review their credit history. Do they pay on time? Are there signs that they always pay 30 days late? Do they owe a lot of money to many people? Bypass any company that doesn’t seem reliable.
8. Protect Against the Unexpected
Even with a thorough review of a company’s financial history, you can’t predict a sudden closure or bankruptcy. We’ve seen many trucking companies with lengthy histories in the transportation industry suddenly cave to pressure and file for bankruptcy.
In that situation, a non-recourse factoring arrangement offers a layer of protection. If your client doesn’t pay an invoice because of bankruptcy, you’re responsible for reimbursing the factor. With a recourse agreement, you’re forced to repay the money you received as an advance.
9. Protect Your Credit Score
Freight factoring doesn’t impact your credit. If anything, it helps. You’re paying bills on time, which is important for maintaining a good credit score. You don’t have to take out loans to cover expenses and driver wages. You’re not charging bills and building up high credit card balances.
10. Scale Unnecessary Expenses
Running a trucking company requires someone to search for loads, schedule them, plan routes, pay bills, send invoices, and follow up on late payments. It’s a lot. During a slow period, you have office staff who are being paid to sit around.
Instead of paying full-time wages for part of the year and laying people off in the slow period, factoring helps you scale unnecessary expenses. You can have a part-time worker in the office to handle some tasks and leave the invoicing and collections to the freight factoring company.
11. Take on Higher-Paying Loads
You have the cash. You have a fuel discount. You’re in great shape to find higher-paying loads. You don’t have to wait a month or two to get paid for the last work you did, so you can immediately search and accept more work using find load apps or sites.
The busier you are, the more money you make. It also increases word-of-mouth marketing, as brokers and shippers tell others about your ability to do the job quickly and without loss or damage.
Freight Factoring Is For Any Trucking Company
So many carriers believe freight factoring is only for struggling companies. The truth is, it’s a service that’s helped small companies grow into large companies with large fleets. It’s also a strategy that keeps large companies running smoothly, even as the trucking industry experiences fluctuations.
Get a free quote from Saint John Capital today. It doesn’t hurt to see how beneficial a factoring partnership can be, and we offer a free trial so you can see whether you like how it works or if it’s not for you.
