In just the first six months of 2024, around 10,000 motor carriers shuttered their businesses. The nation is down almost 33,000 carriers since 2022, and a lot of these closures have happened in southern states. In November alone, more than 4,000 drivers lost their jobs as companies in Arizona, California, Florida, Georgia, Illinois, Missouri, Ohio, Pennsylvania, and Texas announced layoffs.
Many companies engage in layoffs due to bankruptcies, but there are just as many who look for ways to reduce debt through restructuring. UPS is one of the first to admit their almost 850 layoffs will reduce costs by around $3 billion over the next few years. When you’re a trucking company owner worried about debt, freight factoring with Saint John Capital is the financial solution that can save you.
The Financial Benefits of Freight Factoring
What is your current invoicing routine? If you send out invoices as soon as you’re done with a delivery, you still have to wait weeks before your client pays. However, they might have you waiting until the end of the month and invoicing them for everything you’ve delivered. For deliveries you made during the first week, you’re not invoicing them for weeks and then your client may take another month to pay you.
You’ve now waited two months to get the money you’re owed. In the meantime, bills are stacking up. It’s frustrating and strains your business finances. There’s a better way to keep money coming in and avoid debt. With freight factoring, you gain a lot and avoid running into financial woes.
Freight factoring offers several benefits that help cushion you from taking on a lot of debt. One of the most important is that you have a steady flow of income. When you’re controlling when you get paid, it’s so much easier to pay your bills on time. You avoid hefty late fees and penalties by not paying your creditors on time. You’re not fined by the state or federal government for failing to pay wages to your employees as scheduled. You pay taxes to the IRS on time, too.
When it comes to paying bills, you have the money available and no longer rely on credit cards. Credit card interest is higher than it’s been for decades. With historically high interest rates, it’s very hard to keep your debt from increasing. Freight factoring ends that pain point.
Freight factoring arrangements never go on your credit report. You’re not going to be penalized with a lower score, the way you would if you had to use your line of credit to pay bills. Paying bills on time and relying less on credit cards helps you increase your credit score.
Because you have a higher credit rating, banks look at you more favorably if you do need to take out a truck loan or business loan. Higher credit ratings mean lower interest rates, which works in your favor.
As you build your savings and avoid building up debt, you also gain the attention of brokers and shippers. Just as you look at the credit history of any new clients you work with, they’re looking at your credit rating to determine if you’re reliable. A higher credit rating and strong financial profile make you an appealing choice, so you’ll beat the competition to a stronger portfolio of clients.
When you have a strong clientele, it’s easier to keep gaining revenue and give back to your business. You’ll be able to pay your drivers competitive wages. You’ll offer better benefits packages. Plus, you can invest in more trucks and buildings and grow your business into the trucking company of your dreams.
Get to Know How Freight Factoring Works
We’ll help you gain a brief understanding of how freight factoring works using this example. Imagine you agree to a 90% advance rate for a 3% fee. Once you’ve delivered a load to its destination, your broker owes you $12,000. You have the bill of lading in hand and are ready to get started.
Load the freight factoring app and take a photo of that bill of lading. Submit it for payment to get your cash that same day, if you submit it on time, or within a couple of business days.
The freight factor processes the request for approval. If everything checks out, you get 90% of the $12,000 immediately once the 3% fee is deducted. The 3% fee is $360, so the factor owes you $11,640. You only get 90% of that right now, so you’d receive $10,476.
What happens with the remaining 10%? It’s held until your client pays. Once that happens, the remainder is released to you.
There may be additional fees such as a bank transfer fee. Those will reduce your payment by a small amount, but it’s not a lot of money. It’s far less than you’d pay in late fees or credit card interest if you had to rely on those options until your client pays you.
Choose the Right Factoring Partner for Your Needs
Just as clothing isn’t truly one size fits all, the same can be said of freight factoring. Finding the right factoring partner takes research. Don’t be afraid to ask a lot of questions. Rates are just the start. And, you should get rates and compare them with several freight factoring companies. Rates will vary, and the number of trucks in your fleet, the number of invoices you generate each month, and advance rates impact them.
Another decision to make is if you want a non-recourse agreement, where you wouldn’t have to repay an advance if your client never pays. Or there are cheaper recourse arrangements where you’re not protected. With a recourse agreement, they cost less because you have to pay back an advance if your client doesn’t pay. You shoulder the risk, which makes them a more affordable option.
Non-recourse arrangements have higher fees because you have the assurance that you won’t have to repay if your client suddenly files bankruptcy or shuts down. Think of it as insurance that you’re going to get paid.
Look for additional services. A company might not offer fuel discounts like Saint John Capital does. If you’re saving money every time you fill a truck’s tank, it’s money in your pocket. You also want to see if services like unlimited free credit checks are provided. If you have to pay $50 each time you pull a credit report on a potential new client, it gets expensive.
When you factor with Saint John Capital, you enjoy low rates, arrangements that are customized to your needs, and extra perks like access to fuel discounts, free credit checks, and low-interest business lines of credit.
