The costs of freight factoring

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Updated Feb 3, 2022

During initial calls with carriers, we get the question, “how much do freight factoring companies charge?”

When exploring various services, we all want to know what is the rate or cost. However, we could all benefit from looking at it differently and asking, “What is the total cost to use your service?” Many factors will advertise unattainably low rates to get your attention. Unfortunately, they make up for it with nickel and dime fees and additional services. Per invoice, per deposit, UCC filing fees, and then there’s the aspect that many of their factoring rates depend on the carrier’s use of their affiliate programs (fuel programs, tire discount/maintenance, etc.).

What factoring companies consider to establish the rate

There are many factors that contribute to the factoring rate a company offers you. One of the most significant benefits of factoring for many carriers is that they consider the creditworthiness of your brokers and shippers (not yours) when determining to approve you and set your rate. Additionally, they will consider how much your invoices usually are for and how many of them you wish to factor. When setting your invoice factoring rate, how long your brokers and shippers take to pay is another consideration. 

Typical factoring rates

When all is said and done, I believe most carriers are paying an invoice factoring rate right around 3%, although factoring rates can range from 1%-5%. The actual average factoring rate is impossible to state accurately because the amount is a moving target. 

To illustrate this point, let’s compare Tetra Capital to Smith’s Uncertain Rate Factoring. Tetra Capital offers a flat factoring rate of 2.5%. For example, Bob’s flatbed trucking company delivered a $1,000 load today and turned in the paperwork right away to Tetra Capital. Tomorrow morning Bob will see a deposit of $975. Tetra Capital will have deducted $25, the quoted 2.5%.

Bob is then talking with Smith’s Uncertain Rate Factoring and asks how much he could expect to see deposited to make sure he is getting the best rate possible. Bob knows Tetra does not charge a termination fee, so he could consider switching if he finds a better factoring rate. Smith’s can’t give him a straight answer on what they will deposit in his account for his $1,000 load. Although they can tell him their rate is 2% and their fees vary, sometimes per invoice, based on a list of factors that they may or may not explain to Bob. However, they know most carriers will only ask, “what is the factoring rate?” and not “what is the total factoring cost?”

Additional factoring fees

Additional factoring fees are why you need to ask about total factoring costs because they can really add up, and some are unexpected.

The fees can include application and sign up fees; monthly minimum/monthly volume; per-invoice fee; credit check fee; direct deposit/ACH fee; fuel programs, maintenance programs and other affiliated programs; and termination fees.

Tetra Capital only charges fees for two things, both are optional, and neither is used very often. If a carrier cannot wait to have their money by morning, we can send a wire. This fee is because our bank charges a wire fee, and the end-users bank will almost always also charge an incoming wire fee. The other is a fuel advance. We can advance up to 40% of the amount of the load. Most brokers will also have a fuel advance option. If you can benefit from a fuel advance, your best option is the compare what you can get from your factoring company with what you can get from your customer and go with whichever best fits you.

Flat rate vs. variable rate

With a flat fee, you are offered a rate that does not change. Variable rates deal with how many days it takes the factoring company to get paid on the invoice. Usually, you get a really low rate for payments the factoring company gets within 1-15 days, 15-30, 30-45, and so on, and the rate goes up as the number of days for payment goes up. A variable factoring rate can be a nightmare for carriers.

Let me give you a simple example: Many large brokers pay via ACH direct deposit on day 28 after receiving the invoice. Now, if I am a factoring company and know I can get an extra percentage point on the rate I charge on the deal just by delaying sending the invoice for a few days, what’s to stop me? 

What do you get for the fee you pay?

In addition to getting your money quickly and not having to guess when you will be paid, factoring offers many other benefits and with the right partner, they will be free.

Trucking factoring companies will handle many of your back-office tasks, saving you time and money and allowing you to stay on the road or focus on growing your business. Some of the back-office tasks they will handle for you include invoicing, processing, postage, collecting and more.

Trucking factoring companies may also be able to offer you other ways to save money with access to discount programs on tires, maintenance, technology, hotels and more, and fuel cards. 

Jeremy Robison is President at Tetra Capital, an independent finance company offering easy and transparent freight bill factoring services to trucking companies of all sizes.