When you are just starting out in the trucking business, it can be difficult to determine which connections are worthwhile for success.
Many industry professionals claim they can help you see payments quickly, but are there drawbacks? In this article, we’ll discuss two main types of trucker funding and the key differences between factoring vs. Quick Pay.
Trucker Funding Definition
Trucker funding describes the financial opportunities available to those managing deliveries and fleets. Most often, trucker funding focuses on improving a company’s cash flow so decision-makers can pay employees, maintain vehicles, buy trucks for a fleet and cover fuel costs.
Trucker funding can be the ticket to growing your business faster compared to traditional methods of completing deliveries and waiting for checks to arrive weeks or months later. However, factoring and Quick Pay for truckers have distinct differences.
What Is Quick Pay?
Quick Pay in trucking involves working with a broker or shipper to earn payments. The main difference between factoring services and Quick Pay offerings is that factoring payouts are done immediately when your client is approved. Quick Pay arrangements can take anywhere from two to 30 days because you do not sell your invoice.
The biggest drawbacks of Quick Pay are:
- High fees: Quick Pay brokers keep a percentage of your money as a fee, ultimately cutting into your long-term profit margins. These fees also vary between brokers and aren’t typically set rates, so it’s difficult to predict monthly costs.
- Limited availability: Not every broker or shipper offers Quick Pay, which can complicate the invoice submission process if you work with more than one client.
- Required paperwork: Quick Pay doesn’t eliminate the need to fill out and manage several types of paperwork, including load documentation, invoice records, bills of lading and receipts.
What Is Factoring?
Factoring services, or freight factoring services, involve the trucker or trucking company selling its invoices to a third party to receive payments for deliveries as soon as an invoice is accepted.
Factoring for truckers follows a simple process:
- Job completion: Your trucking company takes care of a delivery and requests an invoice.
- Contact a factoring expert: You contact a reputable factoring company to sell your invoice at a slightly lower price than the full amount.
- Receive payment: Once the invoice sale is done, your trucking business is paid by your factoring partner. The factoring company you work with pays you for most of the invoice amount.
- Final payout: The party responsible for factoring services waits for your client to pay the cost of the invoice in full. Your factoring services partner takes a cut of the transaction and you receive the remaining amount of money agreed on.
How Factoring Benefits Trucking Companies
The factoring system has several advantages, including:
- Faster cash flow: Rather than completing a job and waiting for payment to process, a factoring company purchases an invoice from you, normally at a discounted rate. While you’ll pay a small fee, your company sees money instantly upon finishing a job — sometimes in as little as 24 hours. Faster, more reliable cash flow solutions help trucking companies stay operational and running at a profit.
- Consistent invoicing: Because you’re outsourcing your invoices, you don’t have to worry about whether each individual shipper or broker offers Quick Pay as a service or juggle various fee percentages.
- Credit checks: The factoring company works directly with creditworthy clients and transfers funds directly into the trucker’s account. Credit checks reduce the chances of nonpayment.
- Invoice and collections management: The factoring company takes care of client communication related to invoicing, relieving you of the responsibility of tracking and following up on unpaid balances and collections. This level of operational support also frees you up to spend more time running your company and less time on paperwork.
- Potential discounts: Some factoring companies offer fuel discounts and other benefits when you work with them.
Recourse vs. Nonrecourse Factoring
Factoring services can operate as either recourse or nonrecourse. The difference lies in who is responsible for repayment if a client fails to deliver on payment:
Recourse Factoring
Under this model, you are liable for any debts your clients do not pay. While the factoring service will make every effort to communicate with your clientele to facilitate repayment, you might be required to buy the invoice back in the form of repaying those funds to the factoring service.
Nonrecourse Factoring
These factoring services assume most of the risk that comes with unpaid invoices by taking on the loss. That said, every recourse structure is different. Some services may only offer this option under certain circumstances and may use the recourse model for other situations.
For example, while the factoring company might absorb the loss of an unpaid invoice for creditworthy clients that have a good payment history otherwise, they might not do the same if the reason for nonpayment is bankruptcy or business closure. If companies do offer nonrecourse options, clients will likely need to meet stricter qualifications to be considered creditworthy.
Reasons Factoring for Truckers Is the Superior Option
There are numerous benefits to choosing a dependable factoring partner for your trucking business. Of course, you receive payouts faster than with Quick Pay plans, but these are additional perks you can expect with factoring services:
- Scale your business: With steady cash flow, freight factoring services are an excellent way to grow your team, fleet, equipment and clientele. Because Quick Pay is a limited option that not every broker provides, you can expect to grow your business a lot faster by outsourcing invoices to a factoring service instead.
- Reduce financial risks: Continue operating while a factoring company handles any late invoice payments from your customers. Factoring is especially beneficial for small fleets and owner-operators that lack startup capital to maintain steady cash flow.
- Eliminate financial gaps: Pay employees and stay afloat, knowing you can cover business expenses right after completing a job.
- Minimize paperwork: Factoring services leave you free to run your business while your partners follow up with invoices and reports.
- Simplify invoicing: Each Quick Pay broker sets their own terms, including how much of a fee you will pay with each invoice. Factoring services offer a simpler, more cohesive approach to accounts receivable financing so you can get paid without the hassle.
- Enjoy factoring company perks: Credible factoring businesses provide fuel cards, financial reports and back-office support.
Why You Can Trust FactorLoads for Your Factoring Services
With FactorLoads, you don’t need to wait for a shipper or broker to make payments. We separate ourselves from other factoring businesses by eliminating contracts from our process. Our professionals are known for getting carriers paid on the same day as the delivery, and we give you the best fuel discounts in the industry as a cost-free perk of choosing us for service.
FactorLoads is available 24/7/365 for your factoring needs. Accept carrier loads knowing we’ll never charge hidden fees thanks to our true flat rate. Our team specializes in helping owner-operators and small trucking companies, so we’ve got you covered.
Get in Touch With Us for Freight Factoring Services
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