One of the major difficulties a trucking company will face will be in their accounts receivables department. Although the work has been completed, there’s a good chance you won’t see an invoice paid for 30-90 days — and that can put your monthly cash flow at risk.
That’s where a freight factoring company can save the day. They’ll give you an advance on any unpaid invoices you have, while only asking for a small percentage once it’s finally paid by the client. By not compromising your cash flow, you can keep your business operating with confidence.
If you haven’t been utilizing a freight factoring company, you’re probably wondering how the rates work and whether it’s worth it for your business. Let’s take a look!
What Affects Freight Factoring Rates?
Freight factoring company rates will largely depend on two factors — risk and volume. A freight factoring company wants to know that they won’t be taking on any risks with your unpaid invoices, while also ensuring that there will be plenty of invoices that need to be paid.
You can typically expect to see low factoring rates for low-risk, high-volume transactions. On the other hand, a high-risk and low-volume will generally result in a higher rate.
When determining the risk and volume factors, a freight factoring company will analyze several things. First, they’ll figure out your monthly volume of factored invoices. The more you can offer, the better discount you’ll get.
Next, they’ll want to see how much a typical invoice will be. A freight factoring company will want to see larger transactions. It’s also important to keep in mind that one $1,000 invoice will be easier for them to factor than ten $100 invoices. The larger invoice will normally grant you a better rate.
In terms of your risk, most factoring companies will look at the industry you’re in, the type of clients or customers you deal with, and how stable your business is.
Typical Freight Factoring Rates
Now that we know what will affect your freight factoring company rates, you’re probably wondering what those rates will generally come out to. In order to determine that, there will be two things in play here — the advance and the rate.
While every company will vary, most trucking companies can expect to see an advance of anywhere from 70-85%. Some companies will go as high as 90%, but it’s normally reserved for special exceptions.
You should expect a rate can fluctuate anywhere from 1.0-4.5% per 30 days. Most companies will hold invoices for a set amount of time (90 days, for example) before sending it back to the trucking company. At that point, they’ll request the advance back.
If you’re tired of dealing with overdue payments and seeing your revenue consistently diminished, a freight factoring company can be your knight in shining armor. You’ll get a majority of the invoice right now, as well as not having to deal with trying to get that invoice paid.
Contact us today if you’re ready to see the benefits a professional and leading factoring service provides your company.
Tetreault, Tricia. “Trucking & Freight Factoring ― How It Works & Top Companies.” Fit Small Business, 13 Jan. 2020, fitsmallbusiness.com/freight-factoring/.