Seasonal variations play an important role in any trucking company’s cash flow. It’s super busy with the holiday shipments, but once the holiday shipping rush ends, there are slow months from January to March. As gardening supplies and crops pick up from April to July. August can be slower to start, but it quickly gets busier and leads to the increased number of shipments for Halloween, Thanksgiving, and Christmas.
When there are seasonal variations, it makes it hard to manage your company’s cash flow. It’s important to build your savings to cover the slower periods, but that can be difficult when your clients keep paying later and later. As your late fees and interest charges build up, it eats into your cash reserves. Freight factoring becomes a better option for ensuring your business is well-prepared for slow period.
What Is Freight Factoring?
What is freight factoring and how does it help you stay afloat in the lean times? Freight factoring is a form of cash advance where you deliver a load to the destination. You have the completed bill of lading, and typically that’s used to generate an invoice that you send to your client. You mail, fax, or email the invoice to your client and wait for payment.
Depending on the arrangements, you might find your client takes a month or more to pay what’s due. In all of that time, you have bills to pay. Your bank, utility companies, internet provider, licensing and permitting agencies, insurance, etc. don’t care that you haven’t been paid. If you can’t pay them, they’ll start piling on the late fees and that impacts your credit score.
In the busy period, being paid slowly may not matter as much. You have a lot of work to do, so money is steadily coming in. It’s the lean periods where a late payment can make it very easy to fall behind on bills. The later you pay, the more it costs in interest, late fees, and overdraft penalties. Your credit history takes a hit, and that means higher interest rates on future loans and credit cards.
Freight factoring ends that issue. You deliver a load and submit the bill of lading to the freight factoring company for immediate payment. That team processes your payment request, sends the funds to your account, and generates the invoice for you. The freight factoring company sends the invoice to your client and waits for payment. Meanwhile, you already have the cash needed to cover bills, avoid late fees, and maintain a positive credit history.
Leave as much money as you can in an account to build up during the busy season. When it slows down, you have funds on hand to cover fuel, insurance, wages, and all other expenses until it picks back up.
Understand the Different Services That Are Beneficial
In addition to the ability to get paid the same day or within a few days of completing the job, you should look at services that are included.
Free business credit checks make it easy to check a client’s history with trucker payments. If you have an offer and see the client hasn’t paid others in months, logically you want to avoid that job.
Saving money on each gallon of gas or diesel is also important. TBS provides discounts of up to 90 cents a gallon through Comdata or EFS. You can set spending limits that your drivers cannot exceed and set restrictions on what they can purchase. Your same-day payments go straight to the card to cover those expenses. Plus, there are discounts available on truck parts, tires, and much more.
Can you get discounted insurance for your trucking company? TBS works with dozens of insurance companies to get its members the lowest possible rates.
How Do You Pick the Best Freight Factoring Arrangement?
Freight factoring involves careful thought as there are different options. They may lower or raise your factoring rate, but sometimes paying more works to your advantage.
Client Risk
If you have clients with a poor credit history, you’re going to pay more. That’s if the factoring company will even factor those invoices. The best way to avoid client risk is by taking advantage of any free business credit reports you’re allowed to pull. Many freight factoring companies offer a set number of free reports each month. Others provide as many as you need. TBS provides unlimited business credit checks, so you don’t have to worry.
Non-Recourse vs. Recourse
A recourse arrangement is cheaper, but you are at risk of having to repay the amount you received from the factoring company. If your client fails to pay an invoice, you have to give back the money you received. Many companies feel it’s better to pay a higher factoring fee and have the protection of a non-recourse arrangement. If your client goes bankrupt or shuts down unexpectedly, you’re protected from repayment.
Slow Payments
Many freight factoring agreements are prorated. If your client takes longer to pay an invoice, you pay more by having a fee for each day the invoice remains unpaid. Flat fee contracts eliminate this fluctuation, but you can pay more for that peace of mind.
Volume
When you do more work and send more bills of lading to a freight factoring company, your rates drop. The more work you do, the more you save. You may be limited until you grow your fleet, but with the right partnership and services, it’s easier to grow your fleet.
How Much Do You Want Right Now?
Consider how much money you want right now. Would it help to have the payment hit your account on the same day? TBS offers same-day pay.
How do you keep track of what’s pending, what’s been approved, and what’s been sent to your account? A free app is helpful, and TBS Factoring offers the Get Paid® app to make it easy. You can check things from your phone when you’re on the road.
You can’t stop seasonal variations from happening, but you can learn how to adjust your business to accommodate them. With the right freight factoring partnership, you can build up your cash in the busy season and use freight factoring to ensure you get paid quickly. Plus, services like fuel discounts and load-finding apps keep your business running in the lean periods. TBS Factoring can help you find the right arrangement.