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Fleet factoring solutions: Optimize trucking invoice payment

June 24, 2024

In business operations these days, delivery speeds often matter the most to keep pace with the competition. Mega companies like Amazon and Walmart paved the way for one-click ordering and same-day delivery causing industries across the globe to streamline their business operations to keep up with the pace. The global market for same-day delivery is expected to reach $20.36 billion by 2027, estimated to grow at a compound annual growth rate (CAGR) of 21.1% from 2020. Consumers have taken notice, too. Over 50% of online shoppers aged 18-34 now expect merchants to provide same-day delivery, and over 60% of them are willing to pay extra money for the service. Keeping up with this consumer demand would not be possible without trucking companies, as their services are necessary for maintaining the supply chain and keeping consumers satisfied.

However, not all trucking companies have the short-term resources they need to keep pace. This is especially the case for small- to medium-sized trucking fleets usually operating within slim profit margins. As such, when invoice payments are delayed by an average of 40 days, access to adequate cash flow can become critical. Quick invoice payments are necessary to keep fleet operations running and trucks on the road. While the trend in real-time payment is influencing many industries, it is slow to become standard practice in the trucking industry. The good news is that fleet factoring solutions can provide valuable resources to guarantee quicker invoice payments.

What is factoring in trucking?

Engaging in factoring doesn’t really impact business operations. Trucking companies relying on factoring continue to deliver cargo and transport goods across the nation as they normally would. The only difference is that these trucking companies now sell their accounts receivable (AR) to a factoring company. In such transactions, the trucking company assigns its invoices to the factoring company in exchange for a small percentage of the invoice. The benefits of doing so include quicker payments and a reduced accounting burden, which combine to give trucking companies the increased efficiencies they need to best operate. Fleet factoring payments are not loans, rather, they provide regular cash flow and can be used to fund any aspect of business operations.

According to The International Factoring Association (IFA), “Factoring allows you to use your own hard-earned assets to create cash for the growth needs of your company. Your business gets a percentage of the invoice within a few days and the factoring company takes ownership of the invoice and the payment process.”

How does factoring work in trucking?

There are two types of fleet factoring, classified as recourse and non-recourse plans.

Factoring companies usually offer one of two types of factoring: recourse and non-recourse. In a recourse factoring plan, your company is responsible if your client does not pay. In a non-recourse plan, you don’t have to pay the factor back if the client does not pay due to bankruptcy. However, the bankruptcy usually needs to happen during a certain time period that the invoice is outstanding. Bankruptcies after this time period are often not covered. This important detail is often overlooked.

Note that non-recourse factoring does not protect you against late client payments. Non-recourse factoring might not necessarily be better for your company. While non-recourse offers some protection against client bankruptcies, it comes at a price. Non-recourse plans tend to be more expensive and restrictive. You will want to check with your prospective Factor to see if they offer recourse or non-recourse factoring.

  • Recourse factoring. Trucking companies are responsible for payment if their clients do not pay. Oftentimes, this plan has lower factor fees, higher advance rates, and is easier to qualify for. This plan may benefit trucking companies that prioritize lower fees or predominantly work with creditworthy clients.
  • Non-recourse factoring. Factoring companies bear more risk, as trucking companies are not responsible for payment if their clients do not pay. Oftentimes, this plan has higher factor fees, lower advance rates, and is harder to qualify for. This plan may benefit trucking companies that are risk-averse or work with unreliable customers.

Companies like WEX offer a variety of fleet solutions. WEX Capital uses factoring to enable immediate invoice payment and optimize every aspect of fleet operations. When cash flow is available, fleet managers have better access to the resources they need to keep their business running and keep their drivers paid. Many fleet factoring companies, including WEX, also offer fleet cards that provide real-time access to funds for fuel, hotels, and more.

Save on fuel anywhere you go

Fleet cards offer fuel savings as well. For example, the Fleet One EDGE card gives access to the largest fuel discount network available, with thousands in savings* per year on fuel discounts alone. That level of savings can contribute to the success of a trucking company in remarkable ways. The benefits of the Fleet One EDGE card also include:

  • No fuel transaction fees at 4,000+ in-network sites.
  • Substantial fuel discounts at 2,000+ locations.
  • Universal acceptance at 12,000+ truck stops nationwide.
  • Free fuel card funding with WEX Capital.

Why should I use factoring for my trucking business?

Despite all the benefits of fleet factoring, some trucking companies are still hesitant to make use of the powerful tool. There are many misconceptions about fleet factoring that only contribute to that hesitation. Read on as we provide logical answers to alleviate many of those worries.

Misconception #1: Fleet factoring fees are too costly

The cost of fleet factoring is usually a small percentage of the total invoice value. Oftentimes, this percentage is around 4%, and even less in some cases. For that same small fee, factoring solutions also include administrative services, credit checks, load boards, and insurance, all of which can further save trucking companies valuable time and money. Fleet factoring companies take over the invoicing and collection process, thereby protecting trucking companies from the insolvency of their shippers or broker customers. Fleet factoring solutions unlock greater cash flow and financial freedom, making the small fee associated with factoring a worthwhile investment.

Misconception #2: Trucking companies need excellent credit ratings to be eligible for fleet factoring solutions

Determining eligibility for fleet factoring is a holistic process that takes into account monthly invoice volume, customer volume, and risk. There are many options for businesses in a variety of credit positions. Most fleet factoring companies understand the difficulty in building credit and for that reason offer multiple pathways to gaining eligibility. No matter your business situation, make sure to seek out a fleet factoring company with dedicated, reliable sales representatives. They can discuss all the variables that affect your company’s eligibility for fleet factoring solutions and put your company on the path to further success.

Misconception #3: Fleet factoring contracts lock-in trucking companies

Most fleet factoring companies require a contract that outlines a certain volume of invoices over a specific period of time. These well-defined parameters are beneficial, as they strengthen the integrity of fleet factoring contracts and provide all parties involved with the necessary information to conduct honest business. With that in mind, the process for ending a fleet factoring contract is simple. Most fleet factoring companies allow trucking companies to submit a notice of termination a certain amount of time prior to the contract expiration date. It is important to note these requirements and reference the terms of the contract for a smooth termination process. Another distinguishing feature of some factoring companies is that they have no hidden fees. With such companies, you do not have to worry about hard-to-find charges such as invoice preparation or invoice submission fees. For example, WEX Capital values transparency and works hard to make all of its agreements easy to understand. Setting up new customers, electronic fund transfers, and other transactions are included as part of a clear, comprehensive flat fee.

The value of factoring for your trucking company

It is clear that in an industry on the move, quicker payments are crucial for keeping operations running smoothly. A business strategy including fleet factoring allows trucking companies nationwide to streamline their operations and gain the cash-flow they need to grow within the industry.

Learn more on how to better manage your over-the-road fleet:

Apply for a fleet card today!

EIN Presswire
The International Factoring Association

Editorial note: This article was originally published on August 19, 2019, and has been updated for this publication.

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