As a trucking company owner, choosing the right financial products and tools plays a big role in your success. One decision you face is whether a discount fuel card or business credit card is right for your company. Which is best?
When you or your drivers are on the road, they need to be able to fuel up, and cash isn’t the most convenient option for quick fuel-ups. Cash also increases the risk of theft. That’s where fuel cards or credit cards come in.
Ideally, a trucking company has both available, but what if that’s not possible? How do you decide which is best for your trucking business? At TBS Factoring, we are here to help answer all your questions.
How Discount Fuel Cards Work
Fleet fuel cards, aka discount fuel cards, work similarly to a credit card. Give each of your drivers a fuel card before they hit the road. When they need fuel, they swipe the card and enter any information prompted by the system, such as a driver number or truck number. The driver enters how much fuel is needed and requests a receipt if necessary. The pump turns on and fills the tank with the required amount of gas or diesel.
The purchase of that fuel may be automatically deducted from the balance on the fuel card. That balance may be from prepaid funds, a credit line, or payments received through a freight factoring partnership. You get notifications when fuel is purchased, how much it was, and what the available balance is on that fleet fuel card account.
The discounted gas rate is usually based on one of these options.
- Cost Plus: Taxes and fees are added to the current OPIS rate to create a final fuel price.
- Direct to You: A special low rate is negotiated by the fleet card provider and specific truck stops.
- Retail Minus: The offered discount is deducted from the current fuel price listed at the pump.
- Better Of: The two above options are compared and you can choose the better price from the two.
The benefit of a fuel card is ease of use and security. If a card goes missing, you can immediately deactivate it by calling the company or sometimes through online settings. You can also set limits on how much your drivers can spend each trip.
What are the downsides to fuel discount cards?
- Not every truck stop or gas station accepts them.
- Discounts may vary from one city or station to the next.
- Fuel card fraud is a risk that must be addressed with your drivers and office staff.
- Monthly minimum fuel purchases may be required.
- There may be monthly or yearly fees.
When you get a fuel discount card, it’s worth looking at those downsides and determining if they outweigh the benefits, which is unlikely. A fuel discount card is a great way for a trucking company to save money on diesel, gas, and possibly expenses like tires and oil changes.
How Business Credit Cards Work
Compare a discount fuel card to a business credit card. You’re probably familiar with personal credit cards, and a business credit card is very similar. The difference is you can request multiple cards tied to one business account. Give each of your drivers a card to use when they’re driving a load from one destination to another. They can use that business credit card for fuel and other necessary items like truck repairs.
When you have a credit card, you charge purchases against the line of credit you’re approved for. The line of credit is based on your credit rating and annual revenues. Poor credit scores make it harder to qualify for a low interest rate.
If you have a $10,000 line of credit, you can charge that much before purchases are denied. Each month, you must pay off the full balance or a percentage of the balance owed and interest that’s added to the payment. Currently, the average interest for a business credit card is 22.2%. If you cannot pay off the full balance each month, you face hefty interest charges.
Suppose your drivers have charged $8,000 in fuel and truck repairs during the month. You cannot afford the entire balance until your clients pay you. If your terms state you must pay the interest plus 1% of the balance, your minimum payment with a 22.2% interest rate is going to be around $230. Interest gets costly.
Most credit card companies allow you to set limits on how much your drivers can charge and categories for those purchases. For example, you could limit purchases to fuel, hotels, and truck repairs, so they couldn’t use the card at a beer and wine store. That keeps unauthorized charges from driving up the amount you must repay.
When you sign up for a business credit card account, you often get to pick categories where you earn cash back. The cash back discounts quickly add up and help lower business expenses. A Chase business credit card offers 2% cash back on all purchases at gas stations and restaurants and 1% on other purchases. There’s no restriction on how much cash back you get in one year. This is another way to quickly pay down the balance owed.
The downsides to a business credit card are also worth considering.
- Interest rates on business credit cards are based on the federal prime rate and your business’s credit rating.
- You may not qualify for as big a credit line as you need.
- Annual fees can be costly.
- Interest builds up quickly if you do not pay the full balance each month.
- Failure to pay at least the minimum payment by the due date impacts your credit score.
Our Advice
While both discount fuel cards and credit cards have their place in a trucking company’s financial strategy, credit cards carry more risks. If you spend beyond your means, you run the risk of damaging your credit. Make sure that any purchases you make are affordable if your financial situation changes.
If you find that you own money on a credit card and haven’t been paid quickly enough to make a payment, notify the company ASAP. Alerting them to your situation may lead to a bit of extra time. It’s now the best time to talk to a freight factoring company about factoring your invoices. Get paid now instead of waiting a month or longer for a client to pay you.
Freight factoring is an option where you sell your unpaid invoices to a factor for immediate payment. Haul a load to its destination, send the bill of lading to the freight factoring company for payment, and get paid that same day or within a couple of days. You pay a fee for this service.
While freight factoring does have a factoring fee, it’s far less than credit card interest rates and late fees. Plus, you can get a discount fuel card and gain the additional benefit of substantial gas or diesel discounts with every tank fill. Talk to TBS Factoring to learn more about rates and discount fuel cards.