Freight Financing for Trucking Companies

Most trucking companies are started by drivers who invest their own money to launch and grow the company. While many drivers have a great deal of industry experience, they don’t always have a lot of money. Often, this situation prevents them from reaching their full potential. It also leaves them open to cash flow problems. This article discusses how to overcome this problem. We cover:

  1. Slow shipper payments can ruin cash flow
  2. Finance your freight bills
  3. Advantages
  4. Qualification
  5. Additional benefits
  6. Conclusion

1. Slow payments can ruin cash flow

Financing a new trucking company to get it off the ground is difficult. You need money to get permits, equipment, trucking insurance, and fuel. After paying for these costs, few owners have the funds to handle the inevitable cash flow problems that come from running a trucking company. A major challenge of operating a growing trucking company is dealing with slow-paying shippers. Most shippers pay their invoices on 30- to 60-day terms. This delay puts you in a difficult position. Trucking company owners can’t afford to wait that long for payment. Their companies have growing expenses that need to be paid.

A simple way to solve this problem is to ask your shippers for quick pays. Quick pays are the transportation industry’s equivalent of an early payment discount. Basically, the shipper or broker agrees to pay the invoice quickly but takes a discount. The discount is negotiable and ranges from 1% to 3%.

Quick pays work well if you have occasional cash flow problems. However, they depend on the willingness of the shipper to pay quickly. This willingness to pay quickly often changes during recessions or other difficult times, when you need quick pays the most. Trucking carriers that have ongoing cash flow problems should consider getting financing. This step usually solves the problem. In most cases, the easiest way to improve a trucking company’s cash flow is to finance its freight bills.

2. The solution – finance freight bills

There are two ways to finance your invoices. The option you choose depends on the size and track record of your trucking company. Owner-operators and small carriers often use freight factoring. Larger carriers, on the other hand, often use advanced asset-based options such as sales ledger financing.

Factoring works by financing your slow-paying invoices from shippers. This solution improves your cash flow quickly. There are two ways to structure a factoring transaction. The option you choose depends on your needs and preferences, as most factoring companies offer both options.

Owner-operators and small carriers typically use single-installment transactions. In these transactions, the factoring company advances up to 98% of the invoice. The funds are deposited directly to your bank account or fuel card once the load is delivered. The funds that were not advanced will become the factoring company’s fee once the invoice is paid.
Larger carriers often choose two-installment transactions. The first installment advances up to 90% of the invoice. It is deposited into your account once the invoice is verified. The second installment covers the remaining 10%, less the factoring fee. The second installment is deposited once the shipper pays the invoice in full.

Single-deposit transactions provide a higher advance but are more expensive than two-installment transactions. Consider moving to a two-transaction structure once your cash flow allows you to do it. For more information, read “What is Freight Bill Factoring? How Does it Work?

a)  Costs

The cost of a freight bill factoring facility varies based on the size of the receivables you want to factor, their credit quality, and the type of transaction structure you use. Average rates range from 1.15% to 3.5% per 30 days, depending on these criteria. The rate is often discounted from the full value of the invoice and is assessed once the transaction settles.

3. Advantages of freight financing

Using freight factoring has a number of advantages over other solutions. The most important benefit is that your cash flow improves quickly. Other benefits include:

  • Available to new and small carriers
  • Easier to obtain than other solutions
  • The line adapts to company growth
  • Access to fuel advances, fuel cards, and other benefits

4. Do you qualify?

The most important requirement to qualify for freight factoring is to have creditworthy shippers. Factoring companies use your shipper’s creditworthiness as collateral for the transaction. Additionally, your trucking company should meet the following criteria:

  • It must have its own authority
  • It must invoice only for delivered loads
  • Its invoices/freight bills must be free of liens
  • It must not have serious corporate legal or tax problems
  • The owners must have experience in the transportation industry

5. Additional benefits

Most factoring companies offer additional services that complement their factoring programs. Here are the most popular ones.

a) Fuel advances

Some factoring plans can also provide fuel advances to qualified trucking companies. These advances are provided as soon as the load is picked up and can help cover delivery costs. However, keep in mind that fuel advances are more expensive than regular factoring advances. Use them only if the profits of pulling the load are reasonably high.

b) Fuel cards

Most freight financing plans can support your existing fuel card and deposit funds directly into your account. Many factors also provide consolidated fuel card plans that take their whole base into consideration. These plans can provide even larger fuel discounts to your fleet.

c) Equipment finance companies and insurance companies

Most factoring companies have partnerships with truck insurance companies and equipment finance providers. These partnerships can be useful if you are looking for these services.

d) Access to load boards

Some factors also have partnerships with load board providers. Load boards can be useful when you have openings in your schedule. However, keep in mind you will not make your trucking company successful by relying solely on load boards. The profit margins from these loads are usually slim.

Resource: Here is a list of load boards.

6. Conclusion

Trucking companies that have cash flow problems due to slow-paying shippers should consider factoring their invoices. This solution provides an immediate advance that improves cash flow. Factoring is easier to get than other solutions, has a number of benefits, and can provide financial stability. When used correctly, factoring can provide a financial platform for growth.

Get a quote

We are a leading factoring company and can provide you with high advances and low rates. Fill out this form for an instant quote. Alternatively, call (877) 300 3258 to speak with an expert.