In the business of moving goods from one place to another, it’s essential to have a complete understanding of fees and total costs associated with freight factoring. Freight factoring is the process by which a freight company uses the services of a financing company to get paid right away. The service provides an immediate flow of capital so carriers can finance their current operations, and is quite valuable compared with traditional invoicing from a broker or shipper that might have 30 or 60 day pay terms. Factoring, however, is often riddled with hidden or unavoidable fees. It is therefore vital for drivers and carriers alike to be aware of the costs of working with a factoring company. Fortunately, nowthere are many ways for brokers to engage new leads without breaking the bank, such as broker marketing. According to Transport Topics, the predicted cost of truckload rates per mile in 2022 is “28.2% higher this quarter,” and there is still concern that rates will rise as demand increases throughout spring 2022. With margins like that, it’s imperative to understand the total fees and costs associated with freight factoring and their impact on profits.
ACH Transfer Fee
Depending on the type of transaction a trucking company uses,,a fee will be charged for using ACH, the electronic bank-to-bank money transfer that many companies now depend on.Considering just how many transactions a company will make in a week or month can be costly. tWhen choosing a factoring company, it is important to know exactly what the terms and conditions are for using an ACH service.
Invoice Processing Fees
Many factoring companies will charge fees to process each invoiced load. Sometimes they may even set a minimum number of transactions for processing simply for using its service. Typically, the more invoices you generate, the lower your fees are.
Late fees are another charge that can accumulate quickly. Some factoring companies will take on the late fees themselves, and some will pass along the late fees or charges directly to your company. Please read the agreement carefully to know all fees and total costs associated with freight factoring, such as what constitutes a late fee, and when the late fee is applicable.
Monthly Invoice Volume Commitment
A factoring company may impose extra fees or percentages if the carrier does not factor the minimum amount of invoices. Furthermore, if a freight factoring company will not help trucking companies find and get paid for more loads, these fees will compound quickly. Make sure to calculate how many invoices you generate to avoid any extra fees.
Taxes and Hidden Surcharges
A factoring company may offer you a rate that sounds better than any offer you have received. But this could be folly. For example, a company could offer a 1.5% rate while another provides a 3.5% rate. Typically the lower rate comes with hidden fees such as minimum volume requirements and advancement rates. The higher rate is usually one flat rate. Therefore reading over all the prices and total costs provided by a freight factoring company before signing a contract with them
Credit Check Fee
Your company may not have its credit reviewed in many cases. However, freight broker client’s credit will be checked. Before agreeing to factor in your invoices, the factoring company will consider your payment history. There typically is a higher factoring cost if your broker or shipper customers have a bad payment history. The idea is that factoring companies don’t work with just anyone. They will want to work with companies with good credit history or else they might not factor the load for the carrier.
Many freight factoring companies require a specific contract term length when working with them. It typically ranges from three months to a year. o not sign a contract with a company that requires a year agreement If you are unsure you want to use the service that long. Always read the fine print to ensure you are not signing into more than what your company needs and be aware of all fees and costs associated with freight factoring. Many factoring companies charge for an early termination of the contract or expect you to finish it out.
Possible Recourse Costs
If a broker or shipper fails to pay on time or at all, the trucking company is liable under the recourse agreement. A portion of your money will be held in a separate account until the factoring company has received payment.
With non-recourse factoring, the factoring company takes on the risk and liability of late and non-payments. The fees and total costs associated with freight factoring can add up quickly. When you sell as a broker, it is essential to decide if you want to go with a non-recourse or recourse factoring company.
Know All Fees and Total Costs Associated With Freight Factoring
When researching factoring companies, it is helpful to focus on all the fees and total costs associated with freight factoring There are many incentives and benefits when choosing factoring, including quickly improving your cash flow. Applying these freight broker sales tips can simplify and streamline the day-to-day tasks of your business. Contact Request a ComFreight HaulPay demo to see a clear-cut solution to freight factoring