Are you considering going into business with a factoring company, but still need some answers before doing so? What kind of risks are involved? When can you expect to receive your funds? How much do freight factoring companies charge? In this article, we will address the determining components of how much freight factoring companies charge, including common pricing, special fees, and more to help get you jumpstarted on the basics.
Common Pricing & Fees
What Is a Factoring Fee?
Factoring fees are the initial percentage of the invoice taken by the factoring company. While they can vary depending on the company you work with, a good rule of thumb is to gauge anywhere between 2-4%. If it is much higher than this, you should know that better options exist, and you may be working with the wrong factoring company.
One exception to this rule may come from non-recourse factoring plans. Because non-recourse factoring poses more of a risk to the factoring company, the costs may be slightly higher. In this scenario, most companies start their factoring fee around 5% for non-recourse factoring and can go as high as 8%.
Monthly Volumes
Some factoring companies also require carriers to meet certain benchmarks known as “monthly volumes.” This term means that your shipping company must factor in a certain amount of loads each month or risk an additional charge. The form this fee takes could either be a single flat fee, or an increase in the factoring fee percentage. In either case, it is important to have a conversation with your factoring company about what their monthly volume requirements are if any, and what the penalty may be.
Reserve Rate
For factoring companies that use a recourse factoring structure, a deposit will be kept on hold as a form of insurance against delinquent payments. Again, the amount can differ between companies, but usually, it is returned to the carrier whenever the factoring company receives their payment.
Invoice Factoring Rates for Companies: What to Look For
Typically, factoring companies in the trucking industry offer a flat fee structure. This system means that you pay a one-time fee that remains the same, no matter how long it takes your customers to pay their invoices.
However, some companies will calculate their invoice factoring rates using a variable structure. As previously discussed, most companies will take a small percentage (2-3%) of the invoice for as long as the invoice goes unpaid. However, an added caveat to this structure could be that the longer the customer takes to pay their invoice, the more you will pay in fees.
For example, your factoring company may charge you 3% for the first 30 days. For every two weeks that pass after those 30 days in which the invoice balance is left unpaid, the factoring company will charge an extra 0.5%. Make sure you are working with reputable clients who will pay their bills on time to avoid such an issue.
What About Long-Term Contracts?
Some factoring companies require you to sign contracts that bind you to work exclusively with them for long periods. However, this is not true of all factoring companies in the industry. If it is important for you not to be tied to one factoring company for the long term, there are options out there for you.
How Does Advanced Commercial Capital Compare?
At Advanced Commercial Capital, we understand that our mission is to help your trucking business succeed. That is why we do everything in our power to offer you the best deals and earn your business every day.
Advanced Commercial Capital has one of the most competitive non-recourse factoring rates in the industry, no long-term contracts, and no set-up or termination fees. We know that making a significant change to your business model is stressful enough, and we do not want to charge you for doing so.
If you decide that factoring is not for you, our Freedom Back Guarantee allows you to leave at any time. While not every factoring company offers this guarantee, not every factoring company cares about the wellbeing of its customers like Advanced Commercial Capital does.
Fill out our contact form, or call us at 855.465.4655 if you’d like to have a conversation about how our freight factoring can be beneficial to your trucking business. We look forward to hearing from you and helping you succeed.
Resources:
https://www.invoicefactoring.com/factoring-blog/factoring101/much-invoice-factoring-cost
https://www.getinstapay.com/blog/common-freight-factoring-fees