Fuel advances have been gaining popularity among owner-operators and small fleet owners in recent years. They can be a useful resource for carriers that are just starting out or are growing quickly. However, because fuel advances also have drawbacks and can be an expensive solution, you should use them carefully.
What is a fuel advance?
Many transportation factors offer fuel advances as an add-on product to their existing programs (such as our freight bill factoring program). It’s a fairly simple proposition. The factoring company advances funds to the small fleet owner (or owner-operator) as soon as the load has been picked up. The advance provides funds to cover fuel costs and other business expenses related to pulling the load to its destination. This upfront funding can be extremely useful if the company is low on funds or is just starting in the business.
Will fuel advances help me?
Fuel advances can help you grow your business if you use them strategically. In general, consider using fuel advances if:
- You don’t have a cheaper financial alternative
- Your profit margins are high enough
- You plan to use the money specifically to cover fuel costs
- Your business is growing too quickly and funds are low
However, fuel advances can be expensive
Most factors limit fuel advances to 40% to 50% of the regular factoring advance up to a certain limit. Factors charge an additional fee for this advance. The fee varies by company but averages about $40 per advance. Keep in mind that the fuel advance is part of the regular advance. Therefore, you also have to pay any factoring fees associated with it.
These advances are expensive for two reasons. First, they need to be processed quickly. The factor needs to collect the paperwork, such as the bill of lading, and verify the load. Second, advancing funds before delivery is risky for factors. They could lose money if the load is not delivered properly for some reason.
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.