Specialized carriers have one of the most stressful jobs in the trucking industry, but it can also be frustrating if you’re not being paid quickly. You have different certifications and requirements when hauling things like hazardous materials, FEMA loads, oversized cargo, and climate-controlled merchandise. Keeping up with all of those requirements takes time and money.
The last thing you need is to go months without being paid for the hard work you did. Freight factoring is a great solution to the problems you have with a strong cash flow until your clients pay their invoices.
What Causes Cash Flow Issues?
When you haul a load, you get the bill of lading, generate an invoice from that delivery, and wait to get paid. Specialized carriers may end up waiting three months or longer for payment, and that becomes a major headache. You have drivers’ wages to pay. There are the permits and licenses to pay for. You have rent, truck loans, business loans, maintenance needs, and fuel that cannot be delayed for months.
Because some specialized loads already take longer to approve and pay, the additional waiting time for your broker or shipper to get paid and then pay you becomes extensive.
For many specialized carriers, the options are taking out a cash advance from a credit card, tapping into a business line of credit, or delaying payments. None of those are ideal as the interest rates and late fees drive you further into debt.
How Freight Factoring Creates a Steady Flow of Cash for Specialized Carriers
Enter the service known as freight factoring. It’s a service where you sell your unpaid invoices at a discount to a factoring company that pays you that same day or within a day or two, depending on when you submit the invoice for payment. You get the cash you need, and the factoring company takes over submitting the invoice, getting the invoice paid, and chasing down late payments if needed. It works like this.
- You drive a load from Broker A.
- When you pick up or deliver the load, you get the signed bill of lading.
- You submit that invoice through the factor’s app.
- The factor processes that request and either approves or denies it for payment.
- If it’s denied, you continue invoicing the client as you usually would.
- If it’s approved, the factor generates an invoice using your custom rate sheet.
- The amount due is sent to your business debit card or account minus the freight factoring fee, which is usually in the 1% to 5% range.
- You watch your account for the payment to hit and now have the money available for fuel and other expenses.
That’s the basics explained, but there are a few other things to know. The factor may not pay you 100% of the money due. There are different arrangements, and the fees vary with each one. You might get a 90% advance with the balance paid when your client pays. If you ask for payment when you pick up the load rather than deliver it, you usually get 50% upfront.
There are recourse and non-recourse freight factoring arrangements. A recourse arrangement allows the factor to seek repayment of your cash advance if your client doesn’t pay. A non-recourse arrangement protects you from having to repay the money if your client has unexpectedly shut down or filed bankruptcy. Fees are higher for non-recourse freight factoring, but it lessens your stress.
You may face hidden fees. Some factoring companies charge an application fee. Others charge you for each credit check that’s run on a broker or shipper you agree to work with. You might also be charged for not meeting a minimum quota each month.
Considerations for Specialized Carriers to Keep in Mind
Not every factoring company understands the complexities of specialized transportation. You need special permits and there’s often extra paperwork that must be completed with a payment request.
One of the biggest issues is the delay in payment. It might not be possible to get paid within 30 or even 60 days. Your factor is upset that the 30-day invoice is outstanding and comes to you to collect the unpaid invoice or assigns fees for each day past those 30 days. It’s not fair to you as there are unique circumstances with specialized trucking.
Another issue that appears is that there are often extra-large invoices associated with this industry. A freight factoring company may not be well-equipped to offer a same-day payment on an invoice that’s $100,000, $200,000, or higher.
Tips for Choosing the Best Freight Factoring Company for Your Specialized Trucking Company
Before deciding who is best, talk to different companies to get an idea of how much they’ll charge you for freight factoring. The lowest fee may not be best, but it’s a good place to start. Once you have rates, ask about additional fees. You might find the low rate quickly increases when you add on things like bank fees or fees for not submitting the required number of invoices in a month.
Find out if the factor only handles freight invoices or offers generalized factoring services. If the company isn’t experienced specifically in freight, it may not be the best choice for your business.
Look into additional services. A freight factoring company that offers unlimited free business credit checks is a service that you shouldn’t overlook. Fuel discounts, low-interest lines or credit, and load-finding boards are other beneficial services.
Finally, look at how long the freight factoring company has been in business. A company that’s been helping trucking company owners for decades is better than a newer, unproven agency. That unproven agency may be fine, but it’s hard to tell if they have the experience and financial standing you need to back your company.
It’s Time to Get Paid at a Speed That’s Better For Your Business
Many specialized haulers see the potential money from FEMA loads and imagine it’s quick, easy money. There are things you have to consider. Daily retention rates are among them. You work hard, so you shouldn’t have to lose money while hauling loads that most trucking companies would pass up.
With many trucks heading to an area, it may be days before your trucks are unloaded. This prevents you from getting back on the road and completing other jobs, which impacts your cash flow. Plus, you’re not going to get paid for months. If you’re not okay with waiting three or more months to get paid, freight factoring is essential.
Talk to the team at Saint John Capital to learn more about a freight factoring arrangement for some or all of the loads you haul. You can reach us by phone or email, and our team is multilingual, so don’t worry if English isn’t your first language. We’re here to make getting paid fast convenient and easy to get started.
