Your trucking business needs to manage cash flow well due to the expense of costs to operate a truck, you will need to factor expenses such as fuel and maintenance, pay for payroll, insurance, and pay taxes in order to grow and survive.
However, how can you run your business day-to-day while waiting 30, 60, or 90 days to get paid for loads that have already been delivered?
Do you turn down loads due to a lack of money? Do you neglect maintenance? When your neck is buried in the daily demands of trucking, how can you keep track of all those unpaid invoices?
The purpose of this guide is to explain how trucking factoring can provide you with cash as soon as possible. In addition, we’ll explain the benefits and cost of freight factoring and what you need to look out for. This will help you to make an informed decision.
What is Trucking Factoring?
Trucking factoring is where trucking factoring companies buy unpaid invoices at a slight discount from owner operators, broker companies, and small and large fleet owners. The cash is injected into your trucking business immediately. You won’t have to wait weeks or months to get paid.
A factoring company can provide immediate access to working capital by factoring freight bills. Both start-ups and established fleets have used this strategy to grow and increase fleet size, according to Overdrive magazine.
You can get up to 98% of your unpaid freight invoices within 24 hours with trucking factoring. You will no longer have to turn down high paying freight loads. To keep your business growing, you will need the support of a factoring company.
There are two invoice factoring options
Your trucking company can choose between two types of factoring plans. We’ll help you understand the differences, so you can select the best plan.
Recourse Factoring
In recourse factoring, you assume the responsibility of non-payment of invoices by your customers.
A factoring company advances cash to you on the basis of an invoice you submit. The client does not pay. If the factor advances you the funds, you are liable for the associated fees. You are liable for the unpaid invoice if you fail to repay the factor.
Factoring rates will be lower because you’re accepting the risk.
Non-recourse Factoring
Non-recourse factoring means that the factoring company will take on the risk that your customers are insolvent or bankrupt. The factoring rate will be higher in this case.
Your factor advances cash to you after you submit an invoice. Truck Factoring companies take the hit if your customer is insolvent or bankrupt and you don’t have to repay the advance.
Consider, however, what would happen if your customer failed to pay for reasons related to claims or other issues. At that point, you would have to reimburse the truck factoring company.
Which is the better option for truck operators?
In short, it is up to you and your business.
To dig a little deeper, you’ll be working with unfamiliar customers if you’re new to trucking. There is a good chance that you will not be familiar enough with them to feel comfortable hauling for them. In this case, non-recourse factoring may be a better option. This would cover the risk of a bad credit customer.
Alternatively, you might believe your customers are creditworthy because you know them well. In order to secure a lower fee rate, you may want to consider recourse factoring.
You have to choose based on how much you trust your customers’ creditworthiness and how much you are willing to risk.
Your number one headache is cash flow, and both options can help to solve it. The cash flow is instantaneous and continuous with freight invoice factoring. The cash flow increases as you grow your business.
How does Truck Invoice Factoring work?
Your trucking business can benefit quickly from truck invoice factoring.
Here’s how the process of truck invoice factoring actually works:
- Deliver the load
- Send over the paperwork
- Get paid in advance
- Receive the reserve
What are the benefits of factoring for truck business?
Factoring receivables improves cash flow and helps grow your trucking business into a success. Trucking companies can benefit from factoring in three different types of ways. Brokers, Fleet Owners, and Owner Operators of trucks can all use this service.
Owner Operators
Cash flow is healthy and consistent with factoring. Therefore, a trend has been developing where truck drivers are increasingly turning to factoring.
Immediately generate cashflow
The factoring process converts unpaid invoices on delivered loads into cash immediately.
You can convert the unpaid invoices of your freight bills to cash within 24 hours by submitting them to your factor. Those good customers can have you haul more loads since your expenses are covered.
Fuel advance
Some factoring companies offer fuel advances. During the delivery period, you may pay for the fuel before the cash is advanced.
Save on petrol
Fuel card programs offered by a credible factoring company will provide significant discounts on fuel purchased at thousands of service stations nationwide. Among the best truck factoring companies, you have the option of delaying fuel payments and taking cash advances to cover over-the-road expenses, which ensures improved cash flow.
By using a user-friendly fuel management portal, you can easily manage, secure, and transparently track your account.
No debt is created
The act of factoring your invoices is not the same as borrowing. The factor buys your unpaid invoices at a discount and pays you the same day. After you receive payment from your customer, the factor sells it back to you at a profit. As a result, you have no debt. Your money is yours. You just get paid faster.
Client credit checks are free
It is sometimes necessary to work with unfamiliar clients in trucking. It is hard to determine their credibility. You know if a load is likely to be paid by factoring since you get free credit checks on potential customers. This is good business and also relieves stress.
Gain access to a team of billing and collection experts
Then you must submit your invoices to your factor. We don’t deal with receivables or wait for payments. Factoring lets your billing and collection needs be handled by a team of experts. You can drive more and worry far less.
Increased productivity
Cash flow is consistently generated with factoring. The cost of operations is covered, and you can carry more loads. This allows you to grow your business faster. Consequently, your revenue increases.
Simple, fast approval process
Factoring is much easier to get approved for than loans and lines of credit. The process doesn’t require any collateral, and your credit score is not considered. Your customers’ creditworthiness determines whether you qualify for factoring. The application process is quick and easy.
Fleet Owners
All of the above benefits apply to small and large fleet owners, plus:
Easier to expand your business
The time is right to consider adding equipment and running more lanes when your fleet is running like a well-oiled machine and your cash flow is steady. Your cash flow problems are eased by factoring, resulting in more revenue and new business.
Help ensure drivers get paid on time
The company loyalty and productivity of drivers decline quickly when they fail to get paid on time. Factoring helps ensure that drivers are regularly paid. When your drivers are happy, you are happy.
Keep all trucks on the road
You have working capital to take care of maintenance and repairs on your truck right away if you have instant cash. Maintaining your trucks properly will reduce downtime and lower maintenance costs.
You can retain drivers much easier
The health and success of your trucking company will be determined by finding and retaining qualified drivers. Create an incentive package that adds security, loyalty, and respect to your customer base by leveraging invoice factoring’s boost in cash flow.
Brokers
Clients, carriers, routes, weather conditions, deadlines, and sales must all be managed by brokers. Invoice factoring provides some of the same benefits to brokers as to owner operators and fleet owners, as well as:
Carrier payment services
Invest in your business and secure more contracts by letting factoring companies handle your carrier payment processing. By submitting your invoices, they will automatically fund your carriers according to their payment terms.
Access to expert billing and collection experts
Factoring companies handle your billing and collections for you. This allows you to focus on running a profitable business while saving time and money.
Quick pay to carriers
By offering competitive quick pay options, you can retain the most qualified carriers.
Increase working cash without acquiring more debt
Your business can grow without taking on additional debt if you factor your cash flow so that you can pay carriers and build a cash reserve to support growth. It is not the same thing as lending.
Advances for carries
Fuel advances are generally provided in advance of loads being delivered by good factoring companies. These are additional services you can offer to your carriers. This helps them stay productive and keeps your business running.
Fuel cards for carriers
Through your factoring company you can offer your carriers fuel cards to save them thousands per truck each year at the pumps. A great business-building tool for you and them.
Flexible payment options
You can offer favourable terms to good customers since you and your carriers are being paid quickly. The factor makes sure that customers pay when they are supposed to. Through more and better loads, you become more important to your customers.
Factoring trucking invoices is beneficial to all types of businesses, whether they are owner operators, fleet owners, or brokers. In fact, it is a smarter and more efficient method of doing business.
How much does trucking factoring cost?
You probably want to know how much does trucking factoring cost. It’s quite easy to figure out your rate. Every factoring company uses the same basic criteria:
Your sales volume
A higher number of invoices qualifies you for lower rates. Factoring companies (but not all) require a certain number of invoices to qualify.
Number of customers
The majority of factors love it when you have a variety of customers. Regardless of the season, you’re more likely to haul freight. Develop a diverse clientele. You’ll earn more money.
The size of your invoices
Collecting many small invoices is more expensive than collecting a few large ones. You can expect a slightly higher rate if you run shorter hauls or less than truckloads with drops.
How long it takes your customers to pay
Your rate increases if your customer takes longer to pay. Keep in mind the time value of money.
Your customer creditworthiness
The discount rate formula is based on this. You get a lower rate for customers with good credit.
Typically, rates are between 2% and 5% of the invoiced amount. This fee is typically outweighed by the benefits of receiving immediate cash.
Recourse vs non-recourse
Recourse factoring is the industry norm used by most trucking companies. Rates range from 2%-3% for a typical 1-5 truck company.
Non-recourse factoring provides additional credit protection. Rates range from 3%-5% for a typical 1-5 truck company.
What to look for in a Truck Factoring company?
The next logical step is searching for the best factoring company to work with now that you know what freight invoice factoring is, the benefits available to you, and some of the fees involved.
Here are a handful of the most important things to consider:
- How long have they been in business?
- Do they have trucking industry experience?
- Do they have a quick and easy approval process?
- Do they offer an easy-to-use online portal and/or a mobile app?
- How quick can you get cash for your unpaid invoices?
- What are their rates and fees?
- Do they require original invoices?
- How much of the invoice can they advance?
- What are their rates and fees?
- Do they require original invoices?
- How much of the invoice can they advance?
- Do they provide a dedicated customer service?
How do you qualify for Trucking Invoice Factoring?
Factoring trucking invoices is easy to get approved for. They don’t care about your credit score, unlike traditional lenders. Factoring companies check the creditworthiness of your customers using information you provide. They use this information to determine their risk.
You will be able to qualify if your transportation company can:
- Be a carrier or truck broker,
- Have all the proper documentation, authorities, licenses, and insurance,
- Work with creditworthy clients,
- And have freight bills that are free of liens.
It really is that simple
Trucking invoice factoring proves to be an effective method for overcoming cash flow gaps for trucking companies. You can haul more loads and improve your cash flow if you get your invoices paid fast.
Seasoned professional with a strong passion for the world of business finance. With over twenty years of dedicated experience in the field, my journey into the world of business finance began with a relentless curiosity for understanding the intricate workings of financial systems.