Everybody likes to get paid, and for trucking businesses, ensuring payments occur on time and in full is the key to maintaining cash flow that allows the business to keep running smoothly. Finding the right payment solution for your company’s specific needs can do just that. Freight factoring and Quick Pay are two common invoice payment options, and here we’ll explore both so you can decide which is best for your trucking company
Freight Factoring or Quick Pay: Which is Right for Your Trucking Operation?
The first thing you need to understand to decide between factoring and quick pay is the definition of both types of payment options.
What is Freight Factoring?
When a trucking company uses freight factoring to get paid for their invoices, invoices are sent to the factoring company rather than the trucking company. The factoring company pays the trucking company for the invoice, charging the trucking company a small fee in exchange for faster payment. The factoring company then collects payment for the invoice from the shipper or broker that commissioned the load.Express Freight Finance offers a factoring service called Instant Pay, which allows payment to be sent as soon as the invoice is approved. You can apply for Instant Pay here.
What is Quick Pay for Trucking Companies?
Quick Pay is a service offered by brokers or load boards, enabling faster payment for your freight invoices. You receive payment within a few days, but a processing fee, typically a percentage of the load rate, is deducted. This processing fee is oftentimes greater than a factoring fee.
Factors to Consider When Choosing Between Freight Factoring and Quick Pay
How Fast Do You Need Paid?
If your company needs to be paid very quickly to ensure steady cash flow, freight factoring with an instant payment option might be a better choice. Quick Pay options may take a few days or even longer to process, resulting in delayed payments that could make it difficult to keep up with expenses like fuel costs, repairs, or driver pay.
How is Your Credit?
Credit is an important part of the decision between factoring and Quick Pay. Trucking companies with poor credit may have trouble finding a factoring company that will take on their invoices, and rates may reflect the trucking company’s poor credit rating. This could make factoring a more expensive option if your company has poor credit.
When you’re considering freight factoring, it’s important to consider your customers’ creditworthiness, too. Since factoring is essentially a loan against the eventual payment of the invoice, the factoring company needs to feel secure in the fact that customers are going to pay those invoices, so they consider customers’ credit as well as the trucking company considering their services.
Fees and Costs
It’s important to compare the fees associated with both options. Freight factoring may involve lower fees and it provides access to working capital and additional services. However, factoring requires a contract. Quick pay comes along with higher fees and lacks the added advantages offered by factoring companies, but there’s no contract involved. Consider the overall impact on your profitability and cash flow before deciding whether the cheaper option is the best option for your trucking company.
How Comfortable Are You with Someone Else Handling Your Invoices?
Many small trucking businesses are used to handling all of their operations internally, from booking loads to dispatching to invoicing. If that level of control over your business is extremely important to you, freight factoring may give you pause. Invoices would go directly to the factoring company for payment rather than customers paying your company directly. Quick Pay means that you maintain control of invoices, but that could cost you extra time and collections are your responsibility. Factoring means that the factoring company handles collection, and in a time is money world, you save both.
It’s important to remember that there are both pros and cons in someone else handling your invoices as is the case in freight factoring, though. You may lose control of your invoices and how your shippers are approached about payment, but it also means that collections are no longer your issue. If you decide to use freight factoring, gone are the days of chasing customers around trying to get them to pay their invoices. The factoring company handles that for you.
There’s no one right way to run a trucking business, and choosing a fast payment option is no exception to that rule. The right option for your company depends on your needs, your business model, your customers, and plenty of other factors. You must keep in mind how fast you need to be paid, your credit, your customers’ credit, the total cost of both types of services, and your level of comfort with outsourcing some of your business’s financial tasks. Consider what your company really needs and make your own list of pros and cons associated with both quick payment options to decide what’s best for your company.