To some carriers, there’s a perception that freight factoring is more expensive than traditional financing. Maybe they’ve even investigated the fees charged by freight factoring services and decided it would cost them more. However, when you dig a little deeper, you find it’s not an apples-to-apples comparison. You have to go beyond comparing the freight factoring fees to traditional banking interest rates.
The True Cost of Traditional Financing
When carriers look at what their traditional financing is costing them, they often stop at the interest rate. If they’re getting a decent interest rate, they think it’s a small price to pay to maintain cash flow. Bank loans take time, though. The application process can be complicated, time-consuming, and full of restrictions. Fees and a lack of understanding of how interest rates work can drive up the price of borrowing, making it much less affordable than it seemed in the beginning.
Meanwhile, a carrier’s working capital is stuck in the limbo of the lengthy payment cycle of the transportation industry.
Freight Factoring is an Attractive Alternative
When you’re strictly looking at interest rates, it may seem like freight factoring is more expensive than traditional financing, but there are other factors to consider. Here are some of the big-picture benefits freight factoring offers that can help carriers improve profitability overall.
Factoring Improves Cash Flow
Poor cash flow can cost carriers their hard-earned dollars. Things like late fees on bills that can’t get paid on time, lost time from prolonged breakdowns, and struggling to get drivers and support staff paid on time can add up and lead to bigger financial problems in the long run.
With freight factoring, carriers don’t have to worry about cash flow. They do the work and submit the invoice; they get paid fast. It’s as simple as that. Depending on the type of factoring service a carrier uses, it could take anywhere from a few days to just a few minutes to get paid rather than the traditional net 30 or 45-day payment processing.
It Takes Accounts Receivable Off the Carrier’s Plate
Accounts receivable can be a time-consuming process. Between invoicing and following up with shippers or brokers on payments, it can be a lot, especially for smaller carriers who don’t have a whole team of people responsible for that kind of workflow.
Freight factoring services take accounts receivable off the carrier’s plate, handling collections from shippers and brokers from submitting invoices to managing incoming payments. The carrier doesn’t need to worry about getting paid on time any longer.
Credit Verification Helps Ensure Invoices are Paid
What carrier hasn’t come across a shipper or broker that seems dead set on skipping out on their invoice? Maybe they pay late. Perhaps the carrier can’t seem to get them to pay at all. This leaves the carrier out the money in the meanwhile, even if the shipper or broker does pay eventually.
Freight factoring services can help eliminate that uncertainty by verifying shippers’ credit. The factoring service ensures the shipper can pay before the load is even taken, setting carriers up for successful cash flow.
Freight Factoring Services Often Offer Additional Tools and Benefits
Freight factoring services often include some other perks that can help carriers streamline their workflows and save money. These may include things like:
- Fuel savings programs
- Fuel cards
- Fuel advances
- Mileage and fuel calculators
- Data to help carriers make smarter business decisions
How Do Carriers Qualify for Freight Factoring Services?
Unlike traditional financing, where banks are looking at a carrier’s creditworthiness to determine whether or not they are able to get a loan, freight factoring services look at their shippers’ creditworthiness. This may mean that freight factoring services are more easily obtainable for some carriers, particularly new carriers who haven’t built much of a credit rating yet.
Freight Factoring is More Affordable Than You Think
In business, the big picture matters the most. Trucking requires operating capital. Freight factoring makes sure carriers have it.