One of the biggest hassles in the trucking industry are slow payment cycles. When you’re driving loads for a broker or shipper, you need to keep up with fuel bills, truck maintenance, driver wages, and your office rent or building loan. If your clients are waiting 30, 60, or even 90 days to pay you, keeping up with those expenses is almost impossible.
Getting paid the same day for the loads you haul is possible. Our guide goes over the best ways to get paid quickly. Fast payments ensure you have a strong cash flow and can keep making freight deliveries.
How Do You Currently Get Paid?
How are you currently getting paid? Like most trucking companies, you’re probably hauling freight to the destination and getting the bill of lading. You use that to generate an invoice when you get back to your office. Most trucking companies use 30, 60, or 90-day payment terms. Government contracts tend to have payment terms of as much as 90 days.
Once it’s completed and double-checked for accuracy, the invoice is mailed or emailed to the client. Now, you sit and wait for the payment. In the meantime, you have to keep up with maintenance and emergency repairs, gas or diesel fill-ups, wages, insurance, bills, and other expenses. If you’re using a business credit card to cover the gaps in cash flow, you might be paying more than 20% in interest.
If the due date arrives and you haven’t been paid, you have to start calling the broker or shipper to find out where the payment is. Chasing payments can become a frustrating part of your job. Your creditors aren’t going to care that you’re not being paid. They’ll hit you with late fees until you make payments. You can charge late fees, too, but there’s no guarantee your client will pay them any time soon.
Sometimes, going to court is the only way to get paid, and then you have the court fees to pay. It becomes a mess that you don’t have the time to invest. You can take the loss, but you’re out the money and now have to get the cash to cover your expenses from somewhere else. It’s one of the reasons so many trucking companies shut down and end up in bankruptcy.
How Freight Factoring Changes That
Freight factoring is the ideal solution, but you do need to understand how it works. With factoring, you sell your unpaid invoices to the factoring company. You get paid a percentage of the money that’s due instantly.
The freight factoring company generates an invoice and sends it to your client. Once your client pays, you’ll get any remaining balance minus the freight factoring fee.
You could be responsible for repayment of the money you received if your client doesn’t pay. The only way around this is by using a non-recourse agreement. The factoring fees are higher, but they protect you from having to repay the money you received if your client shuts down unexpectedly or files for bankruptcy. If they don’t pay for another reason, such as they felt you delivered damaged goods, you have to repay what you received in advance.
How Freight Factoring Works
With freight factoring, you deliver the load to the address you were given. You get the bill of lading signed. Use the factoring company’s app to upload that bill of lading and request payment.
The freight factoring company processes your request. This often involves pulling up a credit report on the broker or shipper to verify their creditworthiness. As this is an important factor, you should take advantage of any free business credit checks you’re allowed. Don’t take work from new clients who have a poor credit rating and you often avoid request denials.
If the request is approved, you get paid the percentage you’ve agreed to. It might be 85%, 90%, 95%, or even 100% with some companies. Then, there’s a freight factoring fee that is deducted from your cash advance. It’s usually in the 3% to 5% range, but it does depend on the terms you set and the company you’re dealing with. The payment is submitted to you the same day you request it, or the next day if you submit a request after the daily deadline.
Suppose you haul freight to the destination and are due to get $20,000 for the job. You work out a deal where you get 90% now for a 5% fee. The 90% advance is $18,000, but the fee is $1,000, so you’d get paid $17,000 right now. You can use that money to keep up with bills, wages, and other business expenses. When your client pays the invoice, you get the remaining $2,000.
There can be additional fees deducted from your advance. If your bank charges a fee for transfers, you’d pay that fee. You might have to pay a fee for not sending enough invoices each month or for business credit checks.
The Other Benefits You Get With Freight Factoring
When you work with a freight factoring company, you’ll often save money on fuel. With a discount fuel card, you save money on every gallon you fill up with. TBS factoring has an app for customers that includes the TBS Fuel Finder, which helps you quickly spot which truck stop has the cheapest price per gallon.
In addition, the TBS Get Paid App uses VeriFast to quickly verify you’ve picked up and dropped off freight, which makes it easier than ever to get paid the same day. You can see what loads have been paid, what’s about to be paid, and what is still pending. It’s never been easier to keep track of your finances when you’re on the road.
Questions to Ask a Freight Factoring Company
When you’re researching the freight factoring companies you’re considering, make sure you have your questions ready to ask. These are the questions we recommend trucking company owners ask before signing any agreement.
- What is your experience within the trucking industry?
- What are your factoring fees, and do you offer non-recourse and recourse options?
- What additional fees should I expect as a trucking company?
- Do I have to factor every invoice with you or can I pick and choose?
- Do you have a fuel discount card? What are the discount levels?
- What other services do you offer?
- Is your customer service department available during certain hours or 24/7?
With more than 50 years in the trucking business, TBS Factoring is a solid provider of freight factoring and many other services. We’re happy to answer your questions and further discuss our freight factoring arrangements.