Freight bill factoring is helping trucking companies to meet the challenge of cash flow. Truck owners normally have to wait 30 to 45 days to receive payments for delivering their loads. This waiting impedes their efforts to stabilize and grow their company. Fuel, truck payments, maintenance, taxes, insurance, tires are all necessary constant expenses involved in owning a trucking company.
Many truckers know about factoring. Sadly though, not everyone has had a good experience with factoring. But a little knowledge will not only help you to have a good experience, but will help you to be involved in a factoring program that will help your company to thrive.
What should a truck owner look for in a premium factoring program?
- High advance rate
- Guaranteed credit of broker or shipper
- Competitive freight bill factoring fee rate (be careful of what the real rate is)
- Dedicated representative
- Other nice amenities
High Advance Rate
Of course, the more money you have quicker, the easier it is for you to keep up with expenses and plan for future expenditures. (And makes sure you will eat today.) The higher the advance, the more money the owner has to pay his bills and keep his truck(s) moving. Premier transportation factoring companies offer 92% up to 98% advance on invoices. And they are providing this advance normally within 24 hours, giving the truck owner immediate cash for a delivered load.
Guaranteed Credit of Broker or Shipper
This is probably the most valuable point to understand. Just because you have a factoring arrangement in place, the factor is not obligated to buy all of your invoices. Let me repeat, a factor is not obligated to purchase all of your freight invoices. No matter how good the rest of the arrangement appears, this one major part of your agreement will save you the most aggravation, and possibly your business.
What you want is a non-recourse factor. That means if your factor approves the credit of a broker/shipper, then they accept the credit risk and will agree to purchase the invoice from that broker/shipper; up to the amount of the advance. So if they advance 95%, then they take a 95% risk, and you a 5% risk as opposed to never being paid for that load. Does not that kind of arrangement put your mind at ease when accepting a load? Premier transportation factors offer this kind of arrangement. Make sure it is in your contract!
Non-recourse factors usually keep an updated online list of brokers that they have already approved and agree to accept their invoices. You will have access to this list. In addition, if a broker is not on the list, a simple phone call will let you know if a broker’s load will be guaranteed.
Competitive Freight Bill Factoring Fee Rate
The factoring fee rate is probably what you would normally make your final decision on when choosing a Factor. It certainly is one of the biggest “hooks” to get you to choose the one you are talking to. But be careful! It may not be what you think or other program features may make it irrelevant.
Some Factors charge a percentage fee per every 10 to 15 days. Others will charge a minimum amount which will cover the first 30 days; then charge a rate for each additional 10 or 15 days. Some factoring financial institutions will have a maximum fee that you will be charged, no matter how long it takes for them to receive payment on the purchased invoice. Others though will wait only a certain period and then expect you to send the advance back to them. These differences are part of the reason you need to look at the whole program.
Some Factors may tell you that you can factor with them for as low as a 1% factoring fee. But what exactly does that 1% get you? How many days does that 1% cover? Will they buy all of your invoices, or will they cherry pick which invoices they will buy? Will they guarantee the credit of your brokers/shippers? What else is involved in their program?
Another Factor may quote you 2 1/2% for 30 days, then 1% for each additional 10 days with a 5% maximum charge. Is that a better rate structure than the one described above? Maybe. Depends on the other features of their program.
So, don’t only hear the factoring fee rate and make your decision just on that. Just because one restaurant is cheaper than another doesn’t makes their food and service better, or even the same.
One more thing about rate fees; as your company grows, you should be able to negotiate a cheaper rate. A large consideration that determines your rate is the amount you are invoicing each month. So once you have set up a factoring arrangement, find out at what level of invoicing you will qualify for a cheaper rate. Check every year.
Getting to the right person that can help you is a challenge when dealing with certain companies. A premier factoring company will assign you a dedicated representative that will handle your transactions and questions. In addition, if you have a question about a broker’s creditworthiness, they will check for you and give you an answer in a few short minutes.
Other Helpful Amenities
Some freight bill factoring companies offer a gas advance along with a gas card. If you have booked a load with an approved broker, the factor will advance money for gas on your gas card. This may be helpful in dire times. Some provide access to a free loader board with details of which brokers they already have approved creditworthy. A simple phone call will let you know if any of the other brokers can be approved.
Extra fees are a concern you should ask about up front. Some factors charge a startup fee, while others do not. Whether you are charged one or not should not be a major concern when choosing a factor as long as it is not much more than $200 or $300. There are obligatory governmental processing fees tied to a financial arrangement. Some choose to pass on this fee to their clients and some choose to “eat” it.
One other fee you will incur is an ACH fee, or as we commonly know it as direct deposit. Factors are charged a fee to transfer money into your bank account. They will pass on that fee to you and normally it is around $5 to $20 per transaction. Other than the two fees stated, a premier factoring company will not come up with other fees to charge you. Find out about fees before you sign a contract.
Know before you sign a contract
Many freight bill factoring companies require at least a one-year contract. If you want to break that contract, it comes with a financial penalty and may not be allowed. So it is imperative that you know the kind of service they are going to provide for you before you sign a contract with them.
Factoring is an excellent and powerful financial tool for trucking companies. It can give you peace of mind and the financial stability to stay in and grow your business. With a little knowledge and forethought, you can choose a Factor that will support you and help your business to thrive.