Factoring for Owner-Operators

Most truckers become owner-operators because they want more money and the freedom to run their own business. But, above all, they want the opportunity to grow and make a successful trucking company.

Unfortunately, most owner-operators experience problems because they don’t have enough money to run the business. They are caught off guard when they don’t have the funds to cover necessary expenses. Before long, they are in serious trouble. This article helps you solve this problem. We cover:

  1. Slow payments and ongoing expenses
  2. Will quick pays solve your problem?
  3. How does factoring improve cash flow?
  4. How does factoring work?
  5. What are fuel advances?
  6. Additional services offered by factors
  7. Conclusion

1) Slow payments and ongoing expenses

Most shippers and brokers pay their freight bills in 30 to 60 days. That timeline means that you, the owner-operator, must pay the expenses of running the trucking company while you wait for payment. These expenses include fuel, repairs, salaries, and so on. This effort can be difficult during the early stages of the business.

Most trucking companies, especially new ones, encounter cash flow problems early on. This occurs because most truckers don’t have a large enough cash reserve to cover expenses while waiting for client payments. Consequently, they have cash flow problems. If not handled correctly, these problems can drive you out of business.

2) Will quick pays solve your cash flow problem?

A simple way to solve this problem is to work with shippers and brokers that offer quick pays. A quick pay is the transportation industry equivalent of an early-payment discount. A shipper agrees to pay a discounted amount within ten days. Otherwise, they pay the full invoice amount on their usual terms. Discounts range from 1% to 2% of the total invoice.

While quick pays are great, they are not always dependable. Shippers choose to offer quick pays based on their cash flow and the economy. They may stop offering quick pays when things get difficult, which is when you need them the most. If quick pays cannot solve your cash flow problems, consider using freight bill factoring.

3) How does factoring improve cash flow?

You can improve your cash flow by financing your invoices with freight factoring. This solution helps owner-operators who can’t afford to wait 30 to 60 days to get paid by their shippers and brokers. Freight bill factoring provides you with immediate funds that you can use to pay for fuel, repairs, and other expenses. More importantly, it provides you with funds that you can use to take more loads and grow your company.

Freight factoring has several advantages over other solutions. Aside from being more accessible than conventional loans, the solution can be deployed quickly, and the line increases as your business grows. The most important criteria to qualify are:

  • The owner-operator must operate under their own authority
  • Your shippers must have good commercial credit
  • Your invoices must not be pledged as collateral
  • Your taxes must be up to date, or you must have a plan in place

This solution is an owner-operator financing alternative that helps truckers who can’t afford to wait up to 60 days to get paid.

4) How does freight factoring work?

Most owner-operators finance their freight bills using a single advance payment. Basically, the factoring company pays them an advance ranging from 95% to 98% of the invoice. The 2% to 5% that is not advanced becomes the fee. The transaction settles when the shipper pays in full. This model is fairly simple and provides a high advance.

Some owner-operators and growing fleets prefer to use a two-payment transaction instead. These transactions have lower advances and lower fees. Often, the initial advance is for 90%. The remaining 10%, less the fee, is deposited as a second installment when the shipper pays. Keep in mind these numbers vary based on your transaction. To learn more, read “What is Freight Bill Factoring? How Does it Work?

5) How do fuel advances work?

At times, factoring won’t be sufficient to cover all your cash flow challenges. This scenario can happen if your cash reserves are very low or during periods of high growth. One of the main challenges you can face is not having the money to buy fuel to pick up and deliver a load. In these cases, consider using a fuel advance.

Many factoring plans also offer fuel advances. These add-on programs provide an advance of up to 40% once you have a confirmation to pick up a load. This advance usually requires providing a copy of the rate confirmation sheet. Fuel advances have several benefits but are also expensive. Use them only on loads that have a high profit margin. You must have a clear idea of your cost per mile so you can ensure the load is profitable enough.

6) Additional services

Most factoring companies offer additional services for owner-operators. Here are some of the more common services.

a) Shipper and broker credit checks

Working with shippers and brokers that reliably pay on time is critical for good cash flow. Most factors run business credit checks on your shippers and brokers at no cost to you.

b) Fuel cards help manage costs

Most factoring programs also support fuel cards. Fuel cards allow you to manage your costs and expenses better. Cards are integrated into the factoring program and can receive advances directly. In many cases, fuel cards can also provide you with substantial fuel savings.

c) Load boards and dispatchers

Some factoring companies can also provide owner-operators with load board access and dispatch services. However, keep in mind that the best way to get trucking contracts and find high-paying loads is to work with shippers directly.

7) Conclusion

Freight bill factoring is an effective solution to finance owner-operators with cash flow problems due to slow-paying shippers and brokers. It can improve your cash flow and provide the funds you need to pay for business expenses. Additionally, factoring companies offer add-on services that help you run a more efficient business. When used correctly, factoring can be a productive tool for growth.

Get more information

We are a leading freight factoring company and can provide owner-operators with high advances at low rates. For more information, get a factoring quote or call us toll-free at (877) 300 3258.