Summary: A fuel advance is an add-on that many factoring companies offer alongside their freight bill factoring programs. Fuel advances provide funds to cover fuel and other expenses. Your company gets access to these funds when you pick up a load. Fuel advances are used by small and growing trucking companies that need funds to take on more loads and grow.
This article explains how fuel advances work, their advantages, and their drawbacks. We cover the following:
- How does a fuel advance work?
- How do factoring advances work?
- Program benefits
- Things to keep in mind
- Strategy
1. How does a fuel advance work?
A fuel advance can provide factoring clients with up to 40% of the value of your freight bill. This advance can be deposited to your account within hours of making the funding request. To send the advance, we need to verify that:
- The load has been booked (with a rate confirmation sheet)
- The load has been picked up (with a bill of lading)
Once the load is verified, funds can be sent to your bank account via a direct deposit or loaded onto a fuel card.
Fuel advances are offered as an add-on to a freight bill factoring program, not as a stand-alone product. They are offered by most factoring companies that specialize in transportation.
2. The factoring advance – after delivery
Most factoring programs offer freight carriers an advance that goes from 90% – 97% of the total invoice. Usually, you can access the full amount of the advance only after you deliver the load.
A fuel advance allows you to access part of the advance before the load reaches its final destination. It splits the factoring advance into two parts. You get the first part when you pick up the load. The remaining funds are deposited into your account after you deliver the load.
a) An example
Let’s consider a simple example. A trucking company will deliver a load for $1,000. Their factoring company offers a 97% advance with a 40% fuel advance option.
The total advance will be $970 (97% of $1,000). The fuel advance would be 40% of $970, which is $388. The freight company gets the $388 fuel advance when they pick up the load.
The trucking company gets the remaining funds once the load is delivered. In this example, it would be 60% of the $970 factoring advance, which is $582. The $388 from the fuel advance plus the remaining $582 equals the $970 factoring advance.
Lean more: Read “What is freight factoring?”
3. Program benefits
Fuel advance programs can benefit small and growing carriers with limited cash flow. They can help you operate the company and grow. The main benefits include:
- Take more loads
- Pay for fuel and pickup expenses
- Improve your cash flow
Learn more: Read “Benefits of Factoring Fuel Advances.”
4. Things to keep in mind
The main disadvantage of fuel advances is their cost. Factoring companies consider them a riskier component of a factoring line. Consequently, they are more expensive than conventional factoring lines.
Fuel advances are typically used by owner-operators that are starting out or by small carriers that are growing. They can work well, provided you use them carefully. Since they are expensive, you should use them only for loads with a high profit margin.
In general, you should avoid fuel advances for loads coming from a load board. These loads have very low profit margins and may not support the cost of funding.
5. Strategy
Use fuel advances if you have a good idea of your cost per mile. This requirement is essential as it is the only way to determine if your rate per mile will be high enough to cover the extra cost of financing.
Additionally, you should have a driving strategy that considers IFTA and allows you to get the cheapest diesel price. This is a crucial component of a successful growth strategy.
Do you need help paying for fuel?
We are a leading factoring company and can provide you with a competitive fuel advance plan. For information, please get an online quote or call (877) 300 3258 to speak with an expert.