It’s been rough for two years, and hopes are that 2025 will bring much-needed life to the freight industry. For some freight brokers, it’s a little too late. Over 3,100 freight brokerages shut down in 2024, and that’s on top of the almost 2,400 from 2023.
The number of closures is increasing. Low rates, high amounts of debt, and market downturns all impact the freight industry from both the trucking side and the freight broker side. Big names like Surge and Transplus filed for bankruptcy in 2023. Meanwhile, Convoy was acquired by another company. (Convoy became Flexport, but layoffs continued into late 2024.)
There are still well over 25,000 brokerages, but yearly declines seem to be averaging around 10.5%. Theoretically, that could be around 2,600 closures in 2025. You must be prepared for these changes, and a non-recourse freight factoring arrangement with Saint John Capital is the insurance you need against an unexpected closure.
Understanding Freight Factoring and How It Protects You
Freight factoring is a service where you sell your unpaid invoices to a factor for a discount. The factor pays you the amount you’re owed, minus the fee and any extra charges, such as bank transfer fees. You have a steady flow of money coming in and no longer must wait for freight brokers and shippers to remit payment.
How does this work? You agree to deliver a load for a broker. Your driver arrives at the loading dock to pick it up, and that’s the initial touchpoint where a bill of lading is collected. When your driver arrives, the bill of lading is finalized to prove that the load was delivered as promised.
Send that bill of lading to a freight factoring company for processing. The amount you’re owed has any factoring fees deducted, and the balance is paid to your account. If you’re owed $20,000 for a delivery and the fee is 2%, you’ll receive $19,600 immediately.
The $19,600 assumes you have an agreement for 100% cash advances. That isn’t the case with every factoring company. Some hold onto a percentage until your client pays. Once the invoice is paid by your client, you get the remaining balance. Suppose you had an 80%/20% arrangement with a 2% fee. It would work like this.
- You’re owed $20,000.
- The factor pays you 80% now ($16,000) but takes out the 2% fee, resulting in a payment of $15,600.
- Your client pays a month later.
- You receive the remaining $4,000.
Other fees may be deducted, such as a bank transfer fee. Those are discussed when you arrange factoring with a specialist.
The payment options vary from one freight factoring company to another. Saint John Capital offers 50% or 100% cash advances. If you want to get paid when you pick up a load and have funds for fuel and transportation fees, a 50% cash advance is available. Or, wait and get paid when you deliver the load and get 100% of the money you’re owed minus the freight factoring fee.
Another benefit with Saint John Capital is that you can get paid the same day you deliver a load. Suppose your driver delivers the load at 6 a.m. Submit your bill of lading by noon EST and receive the money that’s due that afternoon.
In addition to faster payments, freight factoring offers many additional benefits.
- Upload invoices generated by the factor to your bookkeeping software and save time.
- Run a credit check on clients before you agree to work with them.
- Use a Find Loads app to look for additional work when you need it.
- Access to helpful products like business lines of credit with favorable interest rates.
- Track your drivers in real-time and can help them reroute if there’s a weather delay, accident, or sudden road or bridge closure.
- Allow your clients to pay you instantly online through Click and Pay API.
The Difference Between Non-Recourse and Recourse Factoring
When you partner with a freight factoring specialist, you also must decide if you want recourse or non-recourse factoring. Circle back to the cash advance you received in the example. If your client never pays the invoice, you could be legally obligated to repay that money.
A recourse arrangement has the lowest fees, but you’re on the hook for an unpaid invoice. If your freight brokerage fails to pay the factoring company, you must repay the money you received. A non-recourse arrangement protects you. Think of it as insurance against unpaid debt.
Non-recourse arrangements offer protection against sudden closures or bankruptcies. The freight factoring fee is higher, but you’re not responsible for unpaid invoices. It’s not your problem. The factor shoulders the financial blow.
What Happens If a Broker Doesn’t Pay?
Suppose your freight broker had you deliver a load. You received payment immediately from the freight factoring company. Six weeks later, that invoice still hasn’t been paid. If you’d chosen a recourse arrangement, you’d have to repay the funds. A non-recourse agreement eliminates the need to repay, but there are things to know.
The brokerage must be on an approved list. If you decide to take a job, you need to do your due diligence and run a credit check. If the brokerage has poor credit, a non-recourse agreement won’t protect you. You need to work only for approved brokers.
If the client claims they didn’t pay the invoice because you didn’t deliver the load as promised or damaged items when you were delivering them, non-recourse arrangements won’t help.
You took all necessary precautions. The broker was on a list of approved brokers. Their credit history was clean. Six weeks later, the invoice hasn’t been paid, and you see on the news that the brokerage closed its doors without warning. You’re protected and won’t have to repay the money. That’s the benefit of a non-recourse arrangement.
What if you don’t factor your invoices at all? You’re used to invoicing your client and getting paid at the end of the month. You’d rather not pay any fees. Imagine reading trucking news four weeks later and learning your broker went bankrupt. You’ll never get paid. Could you survive that without having it hurt your financial standing?
Take Steps to Protect Your Business’s Finances
Ultimately, you must decide if higher freight factoring fees are worth the peace of mind that you’re off the hook if your brokerage unexpectedly shuts down. Lower fees may be more appealing on paper, but are you prepared for the financial hit if your freight broker closes its doors?
Get a free quote from Saint John Capital today. We’ll go over the different rates that apply to a trucking company with your number of trucks and help you determine the best options. Our non-recourse factoring options protect you from unexpected bankruptcies and shutdowns, so you no longer worry about getting paid in challenging times.
