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Trucking fleet
Trucking factoring: Get paid faster
In business operations, delivery speeds have changed dramatically over the last several years. To keep pace with the competition, same-day delivery is often what’s expected. This is because companies like Amazon and Walmart now offer one-click ordering and same-day delivery. The global market for same-day delivery is expected to reach $20.36 billion by 2027. Keeping up with what customers need would not be possible without trucking companies, as their services are necessary for maintaining the supply chain and keeping consumers happy.
However, not all trucking companies have the short-term resources they need to keep up with demand. This is especially the case for smaller trucking businesses usually operating with less capital than the big guns. What this means is that when invoice payments are delayed, access to cash can become critical. Quick invoice payments keep fleet operations running and trucks on the road. While the trend in real-time payment is happening in many industries, it hasn’t yet become standard practice in the trucking industry. The good news is that trucking factoring companies can provide valuable resources to guarantee quicker invoice payments.
How to take advantage of fleet factoring for your trucking business
Download our comprehensive fleet factoring e-book to help build efficiencies for your trucking business
What is factoring in trucking?
You may be wondering, what is factoring in trucking? If you’re a trucking business and you’ve sent out an invoice and you’re waiting for payment you can bring an invoice to a factoring company and get cash within a few days. Trucking companies using factoring continue to deliver cargo and transport goods across the nation as they normally would. The only difference is that these trucking companies now sell their accounts receivable (AR) to a trucking factoring company. This happens in exchange for the factoring company keeping a small percentage of the invoice. The benefits of doing so include quicker payments and reduced administrative work. Combined, these give trucking companies the freedom to keep doing their job without worrying about getting paid. Fleet factoring payments are not loans, rather, they provide regular cash flow and can be used to fund any aspect of your business.
According to The International Factoring Association (IFA), “Factoring allows you to use your own hard-earned assets to create cash for the growth needs of your company. Your business gets a percentage of the invoice within a few days and the factoring company takes ownership of the invoice and the payment process.”
How does factoring work in trucking?
Trucking factoring companies usually offer one of two types of factoring: recourse and non-recourse. In a recourse factoring plan, your company is responsible if your client does not pay on the invoice. In a non-recourse plan, you don’t have to pay the factor back if the client does not pay due to bankruptcy. However, the bankruptcy usually needs to happen during a certain time period that the invoice is outstanding. Bankruptcies after this time period are often not covered. This important detail is often overlooked.
What are the differences between recourse and non-recourse factoring?
Here are the differences between recourse and non-recourse factoring:
- Recourse factoring. Trucking companies are responsible for payment if their clients do not pay. Oftentimes, this plan has lower factor fees, higher advance rates, and is easier to qualify for. This plan may benefit trucking companies that prioritize lower fees or predominantly work with creditworthy clients.
- Non-recourse factoring. Factoring companies bear more risk, as trucking companies are not responsible for payment if their clients do not pay. Oftentimes, this plan has higher factor fees, lower advance rates, and is harder to qualify for. This plan may benefit trucking companies that are risk-averse or work with unreliable customers.
Note that non-recourse factoring does not protect you against late client payments. Non-recourse factoring might not necessarily be better for your company. While non-recourse offers some protection against client bankruptcies, it comes at a price. Non-recourse plans tend to be more expensive and restrictive. You will want to check with your factoring company to see if they offer recourse or non-recourse factoring.
Factoring and immediate invoice payment
Companies like WEX offer a variety of trucking factoring solutions. WEX Capital uses factoring to enable immediate invoice payment. When cash flow is available, truckers have better access to the resources they need to keep their business running and keep themselves and any other drivers on staff paid. Many fleet factoring companies, including WEX, also offer fleet cards that provide real-time access to funds for fuel, hotels, and more.
Why should I use factoring for my trucking business?
There are so many benefits to fleet factoring. Even so, some trucking companies are still hesitant to make use of the powerful tool. There are myths in the trucking business about fleet factoring that might explain why. Read on to hear about the myths and learn why they’re not true.
Myth #1: Fleet factoring fees are too costly
The cost of fleet factoring is usually a small percentage of the total invoice value. Oftentimes, this percentage is around 4%, and even less in some cases. For that same small fee, factoring solutions also include administrative services, credit checks, load boards, and insurance, all of which can further save trucking companies valuable time and money. Fleet factoring companies take over the invoicing and collection process. By doing so, they’re protecting trucking companies from the insolvency of their shippers or broker customers. Fleet factoring solutions unlock greater cash flow and financial freedom, making the small fee associated with factoring a worthwhile investment.
Myth #2: Trucking companies need excellent credit ratings to be eligible for fleet factoring solutions
Figuring out if you’re eligible for fleet factoring takes into account your monthly invoice volume, customer volume, and risk. There are many options for businesses in a variety of credit positions. Most fleet factoring companies understand the difficulty in building credit and for that reason offer multiple ways to approval. No matter your business situation, make sure to seek out a fleet factoring company with dedicated, reliable sales representatives. They can talk through all the variables that affect your eligibility.
Myth #3: Fleet factoring contracts lock-in trucking companies
Most fleet factoring companies require a contract that includes a certain volume of invoices over a specific period of time. These well-defined parameters actually help you. They strengthen the integrity of the contract and give everyone involved the necessary information to conduct honest business. With that in mind, the process for ending a fleet factoring contract is simple. Most fleet factoring companies allow trucking companies to submit a notice of termination a certain amount of time prior to the contract expiration date. It is important to note these requirements and reference the terms of the contract for a smooth termination process. Another distinguishing feature of some factoring companies is that they have no hidden fees. This means you don’t have to worry about hard-to-find charges such as invoice preparation or invoice submission fees. For example, WEX Capital values transparency and works hard to make all of its agreements easy to understand. Setting up new customers, electronic fund transfers, and other transactions are included as part of a clear, comprehensive flat fee.
The value of factoring for your trucking company
It is clear that in an industry on the move, quicker payments are crucial for keeping operations running smoothly. A business strategy including fleet factoring allows trucking companies to streamline their operations and gain the cash-flow they need to grow within the industry.
Save on fuel anywhere you go
Fleet cards offer a way for your trucking business to save money. For example, the Fleet One EDGE card gives access to the largest fuel discount network available, with thousands in savings* per year on fuel discounts alone. That level of savings can contribute to the success of a trucking company in remarkable ways. The benefits of the Fleet One EDGE card also include:
- No fuel transaction fees at 4,000+ in-network sites
- Substantial fuel discounts at 2,000+ locations
- Universal acceptance at 12,000+ truck stops nationwide
- Free fuel card funding with WEX Capital
Learn more on how to better manage your over-the-road fleet:
Sources:
Pymnts
EIN Presswire
FreightWaves
The International Factoring Association
NerdWallet
Editorial note: This article was originally published on August 19, 2019, and has been updated for this publication.
*The discount is the difference between the retail cash price and the price available to Fleet One EDGE cardholders through Truckers B2B, LLC’s EDGE Discount network. The stated savings opportunity is the average such discount across 2,200 participating EDGE Discount Sites during a 6-month survey period in 2019 and does not represent a guarantee of future pricing. Any given customers’ actual savings may differ depending on location and the cardholders’ choice of merchants. There is no transaction fee at EDGE Discount Sites or at any of the 1,300 Fleet One Discount in-network locations. The card also provides wide acceptance at thousands of out-of-network WEX OTR truck stop locations. While these locations do not offer special EDGE network discounts, they have all agreed to charge no higher than their posted cash price. Customers may be required to pay an out-of-network fee for each transaction at such locations.