A cash advance is a short-term loan that allows you to borrow funds at a higher interest rate. Generally, people think of a cash advance as funds borrowed against a credit card, but payday loans are also a cash advance, and either product can be incredibly expensive due to the high interest rates. The reality is that there are several different ways to get a cash advance, and some are less expensive and more favorable than others.
At heart, a cash advance is a financial product or service where you get cash fast, and that cash is an advanced payment from something else. With a cash advance on a credit card, you’re getting cash from your credit line and have to repay it at whatever your interest rate is. Plus, there are usually cash advance fees added to the amount you get.
You can take out cash from a business line of credit or business credit card, too. However, they’re not what people think of when they’re considering a cash advance. They are other means of getting cash fast.
Freight factoring is a better option for trucking companies as the factor gives you a cash advance on the money your clients owe you. When your client pays the invoice, the freight factoring company gets that money back. That’s the one thing to keep in mind. You get cash in advance of your client paying the invoice, but if they never pay, you could be obligated to pay that money back. It all comes down to the type of factoring contract you sign.
Explore How Cash Advances Work
The fees you pay are all dependent on the type of cash advance you have. With any of them, you get cash and have to pay it back in some way. This is incredibly important as the wrong product can drive you deep into debt, and it can be hard to climb back out.
A credit card advance is money you draw from your credit line. You have to pay whatever your current interest rate is on the amount of the advance, and that interest continues to build until you’ve paid off all of the money you borrowed. Plus, there’s often a fee of 3% to 5% for that cash advance. If you requested a cash advance of $500, a 5% fee would have you paying $25 just for the advance. The interest is in addition to that. Forbes states that the average credit card interest rate in July reached 27.62%.
Compare those to freight factoring. You get cash for the work you do within days of delivering the items you’re hired to haul. You now have an invoice that holds monetary value, but it might be months before you get paid. Instead of waiting, you trade that invoice to a freight factoring company that advances you the cash and invoices your client. Once your client pays the invoice, the factoring company gets their money back.
The fees in freight factoring vary, but it’s often no higher than 5%. Rates are dependent on several things, such as how many invoices you send out to your clients each month, how many trucks are in your fleet, and whether you want a recourse or non-recourse arrangement.
Recourse arrangements are cheaper as you’re promising to pay back the money you received in advance if your client fails to pay an invoice. Non-recourse freight factoring protects against having to repay an invoice if your client shuts down or files bankruptcy unexpectedly.
What’s the Best Option for Your Trucking Company?
Ideally, you’re going to sit down and consider how many invoices you send out each month. The more business you do, the lower your factoring fees are. However, when you arrange freight factoring from Saint John Capital, you do not have to let us take over every client you have. If you have a client you’ve worked with for a decade and fully trust them, you can keep invoicing them and getting paid as you always have.
How much are you willing to pay to get cash as quickly as possible? If you’re starting out and trying to grow your company, factoring can help you grow. You do pay a fee, but it’s not going to be anywhere near what you’d pay a credit card company.
What to Consider When Choosing a Provider
How do you choose the best provider when you need a strong cash flow for your truck company? It helps to determine what product best suits you. Are you interested in a business credit card in order to get cash advances or is factoring better? We recommend using these tips as a guideline.
Fees and Terms
What are the freight factoring fees? Read over the terms to see if there are hidden fees or fees you feel are unfair. If you don’t agree with the different fees you’d be asked to pay, it’s better to move on.
If you’re using a different product to get a cash advance, such as a business line of credit or business credit card, are you okay with those fees? When it comes time to pay back, will you have enough cash or will it strain your finances in the lean periods?
What happens if your client doesn’t pay by the due date but pays a few days late? Are you penalized each day the payment is late or do you have to repay the amount of the advance on the day after payment was due?
Experience and Reputation
Look at their experience. How long has the company been in business and what expertise do they have in trucking? If they’ve never worked with freight companies, are they going to have enough experience to help you?
What is their reputation with others in the freight industry? If you can see who they’ve worked with, you can look at the financial stability those companies have. Negative reviews can impact your decision, but make sure you’re looking at the full picture. Some people mistakenly review the wrong business or who base their negative review on something that they would have known had they read the contract carefully.
Payment Speed and Factoring Technology
How fast do you get paid? Once you’ve delivered a load and submitted a bill of lading, how long does it take for approval and funds to arrive? Can you get same-day payments? If so, what’s required to get the cash on the same day? If it’s inconvenient to get paid on the same day you do the work or that service is unavailable, you should see how long you’d have to wait. Are you okay with that wait?
What does it take to send the bill of lading? Is there an app where you can upload them directly to the company? Can you track what’s pending and what’s approved?
Other Services
In addition to getting paid quickly, are there other services available? If there are tools that help with your company’s office management and financing needs, it’s beneficial.
With Saint John Capital, you get more than same-day payments for the work you do. You also enjoy fuel discounts, free business credit checks, and load-finding tools to help you find work when you need it. Talk to our freight factoring experts to learn more about our factoring arrangements.
