How Much Do Freight Factoring Companies Charge?
Updated: Nov 24, 2020
Many carriers think the number one concern when finding a trucking factoring company to work with is finding the lowest rate. While a low rate is ideal, it should not be the be all and end all of making a decision, and it is best to look beyond just the numbers. Remember, not all companies offer the same factoring fees. So, when you're comparing rates from different companies, it's important to know the different factoring services each company offers.
Understanding what goes into a factoring rate is helpful when shopping around. The biggest factors that influence a freight factoring rate are how long a trucking company has been in business, the number of active trucks, the volume of freight hauled, the total monthly revenue, the length of the factoring agreement, and whether it's a recourse or non recourse factoring program. Typically, factoring costs are lower for established trucking companies that have been in business for multiple years, haul a large volume of freight, and have a high monthly revenue.
How does an invoice factoring fee work?
Freight factoring rates are typically charged as a percent of the load or invoice amount. Depending on the criteria above, the factoring company, and the services they offer, rates will usually range between 1% and 5%. Once the carrier has been onboarded, they will send their freight bill into the factoring company. The factor will then minus their rate from the unpaid invoice and advance it to the carrier, under the agreed upon payment terms.
There may also be additional fees added for wires and ACH direct deposits. Those fees vary between freight factoring companies. When you sign up with a freight factoring company you should know exactly what they charge to avoid being surprised with hidden fees. Other things that could alter how much a company charges are termination fees, any minimum volume requirements, and advance rates. Factoring companies that charge any fees without warning you are ones you should avoid working with.
What is the difference between non-recourse and recourse factoring?
Non-recourse and recourse factoring both offer different benefits depending on your trucking companies preferences. A non-recourse factoring agreement will protect a trucking business if a broker or shipper doesn't pay on time or at all. The freight factoring company will incur all risk in that situation and take the hit, and the trucking company will not be charged back. Most factors will credit check brokers before agreeing to work with them to avoid working with bad debtors. The factor will also handle all back office paperwork, invoice handling, and collections in this agreement.
In a recourse agreement, the trucking company is responsible if a broker or shipper doesn't pay on time or at all. There is usually a portion held in a reserve account until the broker or shipper pays the factoring company. A trucking company can add billing assistance to this agreement, but is responsible to make collections on their payments.
What are the benefits of working with a freight factoring company?
The main benefit of freight factoring is getting consistent cash flow. Without working with a freight factor, a trucking company typically has to wait 30 days to 90 days to get paid on a load. A freight factor will pay its carriers within 24 hours when they send in their freight bills. This helps trucking companies grow their business and stay on top of payments.
Other benefits of working with a factoring company are the additional benefits they offer. The best factoring companies will offer more than just fast payments. Porter Billing Services offers a dispatch network with pre approved broker and shipper options to find you the best paying loads. Our clients also have access to insurance partners, compliance help, and free fuel cards with advances and discounts.
For more information on how Porter can help your trucking company grow call us at (205) 397-0934 or learn more here.