Average Trucking Invoice Factoring Rates

Last Updated April 26, 2024

Cash flow is the beating heart of every company, so when negative cash flow permeates your trucking business, you feel the consequences.

Because of the threats posed by cash flow problems, many trucking business owners turn to invoice factoring (or “freight factoring” as it’s known in the industry), an alternative financing solution aimed to negate these threats and improve working capital in the process.

If you’re looking for an answer to your financial struggles, freight factoring may be the solution. But let’s first break down how freight factoring works and why it’s a common alternative financing solution, what will determine your factoring rate, and the average freight factoring rates you should expect to find.

How Freight Factoring Works

Freight factoring is a process by which you sell your outstanding accounts receivable to a third-party factoring company (known as the “factor”) in exchange for an immediate cash advance. Prior to this, your customers will have been notified via a Notice of Assignment of the factor’s involvement. This is a vital step because it notifies the customer that moving forward, they’ll submit any and all payments the factor rather than your business.

Once the customer submits payment to the factoring company, the remaining value of the invoice (10 to 20%) is released to your business, minus a small factoring fee. And just like that, you’ll have completed the process of factoring.

Why Trucking Businesses Turn to Freight Factoring

The purpose of freight factoring is to provide small trucking business owners with fast cash so that they don’t have to wait the entire duration of their payment terms to be paid for their services. Payment terms like net 30 are common in the industry to allow customers ample time to come up with the cash to pay for services, but that means shippers and carriers are waiting weeks to get paid for completing hauls. Not every trucking business can afford to wait that long.

Why You May Have to Turn to Alternative Financing

There are a variety of industries that experience lower-than-average access to traditional financing methods, and trucking is one of them. You may not be able to afford or be approved for a traditional line of credit if:

• Your business is new
• Your business has subpar credit or doesn’t have ample credit history
• Your business has suffered from cash flow issues in the past, impacting your record of paying bills on time
• Interest rates are too high

Luckily, alternative financing methods like factoring are available to trucking business owners who find themselves in any of the above circumstances. But, like every other lending option, invoice factoring comes with a small price.

What Determines Trucking Factoring Rates

There are a variety of factors that influence trucking factoring rates. Some are within the business owner’s control, while others ebb and flow at the behest of the market.

Length of time in business

If your business is brand new, you may pay a higher fee than a long-standing trucking company. Just like you’re unlikely to be approved for a high credit limit at a young age, your new business is unlikely to pay the lowest invoice factoring fees.

Customers’ creditworthiness

Regardless of how long you’ve been in business, if your customers have high credit scores and are reliable payors, you may be offered lower rates. That’s one of the major advantages of factoring – qualification isn’t dependent on your credit history, but rather your customer’s.

Total monthly revenue

If your company has a high volume of receivables, an invoice factoring company will have more faith in your ability to stay in business for the entire duration of your contract. Longevity is certainly indicative of creditworthiness, and lenders are quick to recognize companies in it for the long haul.

Length of time it takes your customers to pay

If your clients have a history of racking up past-due bills or waiting until the absolute last day of their payment term to pay, your company will likely experience a higher factoring rate. Contrarily, if they’ve proven reliable in the past, a factoring company like altLINE will take this into consideration and potentially lower your rates.

To improve your trucking company’s cash flow, you need to weigh your options, and even though freight factoring might slightly cut into your profit margins, trucking business owners greatly benefit from the cash advance. Plus, it alleviates the stressors that come with waiting weeks for payment and having to figure out how to politely ask for payment if it’s past-due.

With factoring, representatives from the factor will communicate with your clients regarding payment requests, which takes even more off your plate.

Average Freight Factoring Rates

Generally, freight factoring rates fluctuate between 1% and 4%. Also important to note is that freight factoring rates are flat rates, which isn’t always the case for factoring across other industries.

Remember, your rates will depend on factors such as total monthly revenue, the volume of the A/R you’ll be factoring, and your customers’ creditworthiness and payment habits. The more reliable your customers are and the more proven revenue streams you have, the better chance your rates will be at the lower end of this spectrum.

These rates ebb and flow depending on the market as well, which can get competitive. However, a good and honest freight factoring company will do their best to negotiate the fairest rate possible.

Since profit margins can be particularly slim in the trucking industry, the slightest of differences in rates can be especially impactful. Saving every dollar possible is crucial.

Beware of Hidden Fees

Hidden or unnecessary fees can produce ire in even the most level-headed business owners. When you’re shopping for potential freight factoring companies and negotiating rates, watch out for any of the following additional fees:

• Setup fees
• Maintenance fees
• ACH, wire transfer, or direct deposit fees
• Invoice processing fees

Clarify with your factor whether these potential fees are included in the offered rate or not, and double-check before putting pen to paper that all of this pertinent information is included in the factoring agreement.

How Much Does Factoring Cost?

The total cost associated with using invoice factoring varies because each provider offers slightly different invoice factoring rates and fee structures. However, the standard factoring rate (often referred to as the interest rate) typically falls between 0.5%-4.5%, with an initial advance rate typically 80-90%, though this can be as high as 99% for businesses in certain industries, such as trucking.

In Summary: Freight Factoring Rates

Freight factoring can provide a boon to your company’s cash flow when you need it most. While you have to consider if your business is likely to pay an affordable fee based on your creditworthiness and shop for a provider with low fees and limited additional fees, freight factoring has proven a fantastic working capital solution for trucking businesses who are in need of alternative financing for a cash flow boost.