You don’t need to wait a month or two (sometimes three) to get paid for a load. You have options. Depending on your needs and the needs of your company, you can opt to use quick pay on specific loads or freight factoring on all (or some) loads. They both help you get paid quickly after each load for the things your trucking company and drivers need, but they do this in different ways.
Common reasons trucking companies need faster, more reliable payment:
- Fuel for each load
- Driver salaries
- Maintenance costs
- Other operating costs
With both factoring and quick pay, you get timely cash flow to spend on the things you need to fund your business instead of waiting for weeks or months. While you can use both factoring and quick-pay options, here are some differences to consider for both.
What is Factoring?
Factoring, trucking factoring or freight factoring, means you sell an invoice to a factoring company who then advances you the majority of the invoiced amount. Here’s how it works: you deliver a load for a customer, and then you send your invoice to a factoring company instead of your customer. The factoring company sends you a cash advance typically within 24 hours and they collect full payment from your customer. The final step is that when the factoring company gets paid by your customer, they pay you the rest of the invoiced amount minus a small fee.
Freight factoring companies usually offer back-office perks and benefits like fuel card discounts, invoicing and collections, broker credit checks and other services that can benefit your trucking company. Most reputable factoring companies also offer web access to your account through a secure client portal and account representatives who can help you when you need it.
What is Quick Pay?
Quick pay for freight is handled by brokers who advance payment to the trucking company on an open invoice in exchange for a portion of the payment they take as their fee. This can be a good option, but it doesn’t provide consistent payment support. You are not likely to have an account to help keep track of your quick pay transactions. The main benefit of quick pay for trucking is that you get paid within one week.
Let’s take a look at the three categories where there are similarities and differences between factoring and quick pay.
1. Time Frame: Both Get You Paid Fast
Quick pay brokers offer payment on loads within one to seven days which is much quicker than the typical 30 to 60 days. With factoring though, you can consistently get paid the same-day or within 24 hours. Either way you’ll have money in the bank to keep your trucks on the road, but the stability and support of factoring provides consistent cash flow and helps improve operating efficiency.
2. Rates: You Pay Varying Amounts in Service Fees
The rates for the processing fee charged by quick pay brokers can range from 1% - 5%. As a trucking company, you will have to manage all the quick pays that are due from each broker, and each broker establishes their own terms and fees. This can be a lot to manage on your own. With factoring, your money comes from one company, so you don’t need to deal with multiple brokers. Your factoring rate will depend on a few specific details such as your industry, volume of invoices being processed and any debtor risk the factoring company takes on.
3. Availability: Payment on Loads is Managed Differently
Not all brokers offer quick pay, and if they do, they’ll only offer quick pay on their loads. This means you may limit yourself to hauling only certain types of loads from certain brokers if getting paid quickly is a priority for your business. Some brokers that offer quick pay services have loads that pay less than others you could find elsewhere. With factoring, you can submit invoices on all or some of your loads to one company instead of submitting to various brokers, and you can also submit multiple invoices at the same time for convenience.
Benefits of Factoring for Your Trucking Company
- You get paid faster more consistently - You'll get reliable same-day or next-day funding.
- There are options to reduce risk even further – Even if the customer you’re working with goes out of business or declares bankruptcy, you could still get paid (non-recourse factoring).
- There will be less accounting for you to complete – Your factoring company will handle invoicing and collections and will provide additional reporting services.
- You can get free credit checks on your customers – Learn how creditworthy your customers are and if they typically pay on time.
- You can get unlimited funding through factoring – Factor as many invoices as you’d like while your business grows.
The bottom line is you get more than just faster pay when working with a factoring company. The additional support, value, services and flexibility is often worth it and something that quick pay brokers simply don’t provide. Get everything you need from factoring to move your business forward.
Contact RTS Financial today to sign up for our factoring bundle and learn more about other services from our family of brands!