Freightwaves released a report in 2022 that raised alarms for small trucking companies The cost of truck repairs increased by as much as 9% by 2022. It became 51% more expensive to run a trucking company in 2022 due to higher fuel costs, truck prices, higher interest rates, and increased repair costs.
Plus, companies are shifting back to long-term contracts rather than spot rates. In October, spot load job postings decreased by 2%, bringing the yearly decrease to 43%. It’s hurting small fleet operations. As long-term contracts typically go to an established larger fleet, it’s forcing smaller companies out of business. What if there was a better way? Rather than throw in the towel and give up on your dreams, learn how freight factoring supports small fleets.
Have You Looked at Freight Factoring?
Freight factoring is an essential service for small trucking companies. Typically, you take a job, deliver the load as promised, send the invoice to that client, and sit back and wait for the invoice to get paid. Sometimes, clients pay all of their invoices at once, either at the end of the month or at the beginning of the month. If you send an invoice on the 8th and have to wait until the 30th, 31st, or 1st of the month, it’s a lot of time to go without the money you’re owed.
Another issue is that even when the client pays you, if that payment is a business check, it has to clear your bank and then the client’s bank, which adds additional days before you have the cash you’re owed. Meanwhile, the bank holding your truck loan, your utility companies, company credit cards, and your landlord or business loan holder aren’t going to be happy about waiting to be paid. They’re likely to slap you with hefty late fees that reduce your monthly revenues.
Instead of waiting all of this time and dealing with late fees, you can get paid the same day or within a few business days by factoring your invoices. You have the money you need to run your business. While there is a fee for freight factoring, it’s not even close to the late fees on a credit card or the damage to your business credit history.
How Does Freight Factoring Work?
Your driver, or yourself if you are a one-person show, picks up the load from the customer. You have the bill of lading showing you’ve picked it up and what’s in the freight. You have an address to deliver it to and head out. Once you arrive, the freight is removed from your truck. You get the signature that the pallets or pieces were delivered.
At this point, you’d take the signed bill of lading and draw up the invoice. That invoice is then emailed, faxed, or mailed to the customer. You wait for payment. With freight factoring, this step becomes the freight factoring company’s responsibility.
You complete the shipment, submit the bill of lading, and the factoring company pays you a percentage of the money you’re owed, minus a freight factoring fee. Some companies offer 100% advances, while others will agree to anywhere from 85% to 95%. When the client pays the invoice, you get the rest of the month that’s due minus the factoring fee.
Suppose you complete a run and the amount you’re owed is $10,000. You enter into a freight factoring agreement where you get 95%, minus a 3% fee. The freight factoring company would pay you the $9,500, which is 95%, minus the fee of $285 (3%). You end up with $9,215 that same day or within a few days, depending on the payment method you select.
There are a few things to keep in mind. Freight factoring arrangements have different terms. Some companies provide recourse agreements, which means you have to pay back that advance if your client fails to pay as promised. There are non-recourse agreements where you don’t have to worry. There are also combinations of the two where the freight factoring company covers a percentage of the loss and you repay the other portion.
What Are the Benefits?
Immediate payments of the money you’re owed are one of the biggest perks of factoring your bills of lading. You don’t have to wait weeks or months to get paid. With a constant flow of cash, you never struggle to pay for necessary maintenance or repairs. You keep up with bills, licensing fees, and insurance.
Freight factoring companies often have fuel discount cards that help you save money on diesel or gas, too. Plus, you could request same-day payments right to your card and have the money you need when you’re on the road.
With freight factoring, Saint John Capital has an app where you can quickly submit your bill of lading after you pick up a load or drop it off. We’ll generate an invoice when we process your request. Simply upload that invoice to your accounting software and stop spending hours sending invoices and chasing payments. We do it for you.
Do Small Fleets Qualify?
Trucking companies with small fleets often wonder if they still qualify for freight factoring. Most companies will work with you, but the fees are going to be higher. You’re not doing as many runs as a company with 50+ trucks in their fleet, so they qualify for lower factoring fees as they’re getting a bulk discount.
That’s important to keep in mind. You might be paying higher fees right now, but you have a steady flow of cash, pay your bills on time, and can slowly grow your company. As you grow, the fees decrease.
What Should a Company Ask Before Enrolling in Freight Factoring?
What should you ask before you enroll in fright factoring? The most important question is what are the fees. Verify if the fees are flat rate or if there are hidden fees that you pay for things like your client paying late or not factoring a minimum number of invoices each month.
Find out what the different rates are for recourse, non-recourse, and mixed agreements. It may be better to pay less in fees and take on some or all of the risk. Or, you might want to protect yourself from having to pay back any money and agree to higher factoring fees.
If you work with a freight factoring company, you should still be able to invoice your trusted clients on your own. Some factoring companies do not agree with that. Verify that you don’t have to factor every invoice with that company and that you can pick and choose which clients’ invoices are processed through the factoring company.
Finally, ask if there are additional services that help grow your business. You might want to get a low-interest business line of credit to have as a backup during slow periods after the holidays. Load-finding boards, free business credit checks, and Visa cards with fuel discounts are all beneficial services that help support your small fleet trucking company.
Saint John Capital is a leader in freight factoring. We specialize in the trucking industry, and we support small fleet companies. It’s our goal to help you thrive in turbulent times. Saint John Capital was founded in 2009 and has helped many small companies expand their small fleets into larger trucking companies. We’d love to make your company a success. Reach us online for more information about our freight factoring agreements and rates.
