How Does Factoring My Freight Bills Help My Business?
Factoring helps you, the trucker, in three different ways.
- First, by factoring your freight bills, you’ll have the cash immediately after hauling a load. No more waiting for “quick pays” that can take up to 3-4 business days.
- Second, factoring can help eliminate costly fuel advances. Read more about how expensive fuel advances can be.
- Third, a good factoring company will help you decide which loads are worthwhile hauling and which are not based upon the shipper or broker’s credit report.
What’s The Difference Between “Recourse” And “Non-Recourse” Factoring for Truckers?
In simple terms, non-recourse factoring means that if the invoice that is factored doesn’t get paid, that invoice is the factoring company’s problem. These contracts have higher fees than a recourse contract because they provide “peace of mind” that getting paid on that load is no longer the trucker’s problem. In reality, however, most non-recourse factoring contracts only cover if the broker or shipper goes bankrupt or becomes insolvent. What commonly happens, though, when brokers don’t pay is because there is a dispute on the invoice.
That means that if the invoice isn’t paid because there’s damage to the goods or a dispute about the invoice, the factoring company can still recourse, or “charge-back”, the invoice. A non-recourse contract doesn’t typically cover any shortages on invoices. That means if an invoice pays $15 short of the full amount, the factor will still charge that amount back to your trucking company. The factoring company will even have recourse against the trucker if the trucker sent the invoice to the broker instead of the factoring company sending the invoice to the broker.
Non-recourse factoring contracts often have a short list of what brokers and shippers can be factored. They may also limit what types of loads can be hauled. So, is the peace of mind really worth the extra cost?
Want to learn more? Check out our in-depth explanation of non-recourse factoring.
What’s the Difference Between A “Quick Pay” and a Fuel Advance?
Even though the two terms are often used interchangeably, a “quick pay” and a fuel advance are two completely different things.
A “quick pay” is when the broker offers to pay a trucking company faster than their typical terms once a load is delivered. Under a quick pay the load may be paid as soon as 15 minutes or as long as four days.
A fuel advance is when the broker advances cash when the load is en-route to its destination. This advance is typically 40% of the load value. These funds are meant to cover fuel and other operating costs for that load.
How Expensive Is A Fuel Advance?
The pricing on fuel advances can be deceptive. Here are a few things truckers should know about fuel advances. A fuel advance can range from a flat dollar fee ($10-25 is typical) to a percent fee. The percentage may be based on the full value of the load or on the amount advanced, depending on the broker. The broker may include service charges in addition to the advance fee. For instance, there may be a Comdata fee as well.
If you need to take a fuel advance, you should first figure out how expensive it is from that broker. Some questions you can ask are:
- How much is the fuel advance?
- If it’s a percentage, ask if the fee is based on the amount advanced or the amount of the load.
- Is there a service charge?
- Is it on top of the advance fee?
- When can I receive the fuel advance?
- How quickly will I receive the cash?
Asking a few simple questions can help you better manage your expenses when you have an urgent need for fuel.