Not everyone has time to wait, especially when it comes to getting paid. You work with some fantastic brokers and shippers, but waiting for payment until the end of the month is stressful. You’ve heard about freight factoring, but you have a lot of questions. Here are 15 of the most commonly asked questions.
- Why Would a Company Want to Factor Their Invoices?
The benefits of freight invoice factoring are plentiful. Top of the list is that you get paid quickly. You’re not waiting weeks or months to get paid. You’ve delivered the load, so why should you have to wait?
When you get paid the same day or within a few days of delivering a load, you can invest the revenue into business growth, pay bills, or make sure drivers get paid quickly. It’s also handy for paying for unexpected truck repairs and business expenses.
- How Does It Work?
How does freight factoring work? Your driver picks up a load or delivers it and submits the bill of lading to the invoice factoring company. The request is processed, and payment is made to your fuel card or sent to your bank. Fees are deducted from the money you’re owed.
If you are given a partial advance, you’ll get a percentage right now. The balance is paid when your broker or shipper pays the invoice.
- How Much Does Freight Factoring Cost?
It’s a little harder to lay out exactly how much freight factoring costs. The rate depends on the number of trucks in your fleet and what fees your bank charges. With 11+ trucks, you could pay factoring fees as low as 1%. If you don’t have many trucks, factoring fees maybe 1.95%.
- Do I Have to Factor All of My Clients’ Invoices?
What about situations where you have one client who pays the same day they receive an invoice, but another takes over a month? You don’t want to factor the first client’s invoices, so you worry that you’ll be forced to factor every job you take.
You do not have to factor all invoices. If you have a reliable client, you continue invoicing that client as you have been. You can factor the other invoices, however, and even factor invoices for new clients that haven’t built a relationship with you yet. Being able to pick and choose which invoices to factor should be one of your priorities.
- Does Freight Factoring Drive Away Clients?
Doesn’t invoice factoring upset clients? If you’re worried that they’ll worry about your business, don’t. Invoice factoring has been used since ancient times. It became especially popular in the 1900s when garment makers and textile companies needed to keep purchasing raw materials but also had to wait for payments for the items they were making and selling. During WWII, the practice expanded.
It’s such a common practice that your brokers and shippers won’t care. They’ve probably already had plenty of experience with freight factoring.
- What Is Non-Recourse vs. Recourse Factoring?
There are three main types of factoring. Recourse requires you to repay your factoring company if your client never pays them by a given date. Non-recourse factoring doesn’t require you to repay it. There’s also a hybrid option where you have to repay a percentage of the amount due if your client never pays the invoice.
- What Is an Advance?
An advance is the percentage of the money you’re getting from the freight factoring company. If the advance is 95%, you’re getting 95% of the amount due, minus factoring fees, and the remaining funds are paid when your client pays the invoice.
Some companies offer 100% advances. This is the best type as you get everything you’re owed. Fees may be higher on a 100% advance.
- Do You Really Get Same-Day Payments?
Some factors promise same-day payments. Is that even possible? It is if you use a fuel card as the payment method. Money that’s due is transferred directly to your fuel card. You’ll have money to use on truck repairs, items at stores, or to fill up your gas tanks.
For the same-day payment option, there’s a cut-off on when you have to submit the bill of lading. It’s typically noon EST, though this may vary from one invoice factoring company to another.
- How Do I Get Paid?
Payments can be made to your fuel card, as mentioned earlier. Some customers prefer to have money sent automatically to their bank. It’s made using a bank transfer. There may be additional fees if you opt for a bank transfer. Ask your bank for information on current rates and fees.
- What Habits Help Me Get Paid Faster?
There are tricks you can use to ensure you get paid quickly. First, don’t take on work with a new customer without looking at their business credit score. If they have a long history of paying late, they may not pay invoices and you could be responsible for the repayment of your advance.
Make sure you submit invoices on time for same-day payments. Find out when the deadline is and set reminders so that you don’t forget to submit bills of lading on time.
- Are There Any Cons to Invoice Factoring?
You have to consider the pros and cons of invoice factoring. While getting paid quickly is ideal, there is a processing fee. You will lose some of your revenues. If the factoring fee could lead to a financial strain, invoice factoring may not be the right fit for you.
If you are in a recourse or hybrid factoring program, you could have to repay the amount you received in advance. Will you have that money available?
- How Do You Pick the Best Freight Factoring Company?
Who is the best freight factoring company? How do you pick the best one? What works for one trucking company may not be right for another. You have to look at your needs. How much can you afford to pay in fees? How many trucks and clients do you have?
After you’ve decided what you’re looking for, check the rates and additional perks offered when you sign up. If there are no additional services and they’re important to you, look around for another company that matches your needs.
- Do I Need to Generate Invoices After?
Now that you’ve been paid, what are your responsibilities? You don’t have to generate, fax, email, or mail an invoice. Your freight factoring invoice is created by the invoice factoring company for you to upload to your accounting program.
- What Other Benefits Do I Get?
Freight factoring companies have a variety of additional services. Their actual options may vary, but most offer services like these.
- Free business credit checks
- Load finding app
- Tracking app
- Online bill of lading submission
- Fuel discounts
- What Should I Look For When I Sign Up?
Before you sign up with any freight factoring company, make sure you’ve gotten answers to any of your questions. Ask to see the contract and don’t sign it until you’re certain you understand and agree to the terms. Pay close attention to these areas.
- How long is the contract for?
- Is there a free trial period?
- What are the invoice factoring fees? Bank fees?
- Is it recourse or non-recourse?
- How is payment made?
Saint John Capital has some of the lowest factoring rates in the industry and is here to ensure you get paid quickly. Use the fast payments to grow your trucking firm or have the freedom to pay your drivers quickly.
