Equipment purchases are expensive but necessary when you run a trucking business. One of the best ways to manage the costs is through freight factoring. Freight factoring helps keep money coming in each week, but it goes beyond that by helping cut costs and gain optimal interest rates.
The Cost of Running a Trucking Company
If you stop and think about every expense you have, it adds up quickly. Start with the hourly wage heavy truck and tractor-trailer drivers receive in the U.S. It ranges from $18 an hour to $36.91 according to BLS.gov. Now, consider the cost of health insurance for those drivers. KFF reports the average premium for one person in 2023 was $8,435, while a family paid $23,968. You’re probably paying a good percentage of that coverage for your drivers.
For companies that offer to cover some or all of the cost of CDL training, it ranges from a few thousand to more than $10,000 across the U.S. Renewals also range in price and can be as high as $120 every few years, and your company may cover that expense. Hazmat endorsements also cost upwards of $125 per the TSA.
Now, consider the cost of fuel. Your trucks will be going through a lot of gas or diesel. Fuel discount cards help a lot, but the current cost of gas in November 2024 is $3.05 per gallon. It’s $3.52 for diesel. That cost is a mix of the price of crude oil (about 50% of the cost), the cost to refine it (11% to 13%), distribution and marketing (20% to 23%), and finally taxes (16% to 17%).
A lot of your revenue goes to those expenses, but you also have rent or a business loan for your garage and office space, utility bills, and office expenses. This can leave little room for the trucks and trailers you need. You have to decide between a lease or truck loan, which can run upwards of $2,500 a month per Bankrate. Used trucks can help reduce that cost by around 50%. Trailers add to the expense. One of the more expensive options, a reefer (cold storage) trailer, can be more than $72,000 used.
Other Equipment Fees to Consider
The truck and trailer are just part of the equipment you need, and that’s where it can get expensive. They may not seem big, but they add up. Some of the things that should be readily available to every driver are:
Ear protection
Hard hats
Safety glasses
Safety vests or jackets
Steel-toed boots
Thick, durable gloves
Trucks need to be equipped with fire extinguishers and a comprehensive first aid kit. It’s also important to have reflective traffic cones or triangles in case of a breakdown. A bright flashlight, foldable snow shovel, GPS navigation system, jumper cables or a battery jumper, and a basic tool kit help a lot. Wheel chocks, battery chargers, and technology like a phone or tablet with service while on the road are also important.
Keeping up with these items, truck costs, wages, benefits, and office expenses burn through revenue faster than you might expect. When you’re stuck waiting for a client to pay you, it becomes a balancing act of paying some expenses and putting others off. Some things cannot be pushed aside. Your employees need their income and benefits.
Paying loans late impacts your credit rating. Failing to pay for utilities could lead to heat or electricity being turned off, which greatly impacts your company. Freight factoring makes it easier to keep up with bills and afford the trucking equipment and upgrades you need.
Six Important Benefits from a Freight Factoring Arrangement
Before we can cover the six key benefits you gain from freight factoring and how that makes it easier to acquire the trucking equipment you need, it helps to have a basic understanding. Freight factoring is a service where you get paid now by a factoring company in exchange for a small fee.
Think of it as a cash advance of sorts. The broker you work with owes you $10,000 this month, but they don’t typically pay until the first week of the following month. You have weeks to go without that payment arriving. In the meantime, you don’t have that money and can’t pay bills.
Instead, you have a freight factoring company pay you now for a 5% fee. Instead of $10,000, you’d get $9,500, but you get it now and can keep up with your bills. That’s the basic premise though there are variations, such as getting 80% now and the balance when your client pays that you and the freight factoring company agree on. This arrangement is beneficial for these reasons.
Money keeps flowing in.
Instead of letting bills collect, you have a steady flow of cash all month and can pay bills before they’re due. You’re no longer scrambling to pay bills because your client is paying later than expected.
You pay your employees on time.
Because you have cash long before the month is up, you pay your driver’s and office staff’s wages on time. They’re not becoming disgruntled because they’re waiting.
You qualify for lower interest rates.
When you pay your bills on time or before they’re due, it’s reflected on your credit history. That improved credit score makes you a better financial risk, so you qualify for lower interest rates and more advantageous loan products.
Truck loans are easier to manage.
With a solid cash flow, you can pay your truck loans on time. Plus, you have lower interest rates, which makes it easier to afford that new or used truck and trailer.
You access additional services that keep costs down.
Many freight factoring companies offer additional services that make it easier to run your trucking company. This includes benefits like company credit cards that don’t require a personal credit score to qualify for. Business lines of credit with competitive interest rates can often be cheaper than a truck loan. Gas discount cards also ensure you save money on every gallon of gas.
Work is easier to find.
One other service that Saint John Capital offers is a load-finding app. You have room in your schedule for another load. Maybe you have a half-empty trailer and would rather fill a truck for a cross-country trip. Load-finding apps make it easy to find additional work.
Saint John Capital’s expertise in the trucking industry is a great partner to have on your side. Learn more about freight factoring and how it makes it easier to afford new trucks and equipment.
