In the trucking industry, customers typically wait 30-90 days after the load delivers to pay the trucking company. However, most companies can’t wait 3 months for a paycheck, especially when margins are so thin and there are immediate demands like fuel, tires, and truck maintenance. Speeding up cash flow generally requires using to either quick pay or freight factoring.
Quick Pay – Convenient but Limiting
Some brokers offer quick pay on their loads. “Quick pay” is when a broker advances the trucking company for an invoice in exchange for a small fee. Quick pay is convenient because both the dispatched load and pay come from the same source. In addition, most brokers can get the trucking company paid anywhere from 1-7 days after the load is delivered. Waiting a week for cash is much better than waiting a month.
However, brokers typically only offer quick pay on their loads. If the trucking company finds a better paying load elsewhere (unless it also comes from another quick paying broker), they will have to wait the full 30-90 days for payment. If the trucking company cannot wait out the load’s pay term, the company may be forced to pass on that load and take a lower paying load from the quick paying broker. This catch-22 of taking lower paying loads in order to continue receiving quick pay can cause the trucking company’s growth to stall. The other thing to mention is the simple fact that a broker makes its profit by offering you a lower rate for a load than what it is worth. By telling them that you need to use quick pay, it hurts your negotiating position.
Factoring – More Choices but Usually Costs More Up Front
“Factoring” refers to selling of a company’s accounts receivable to a 3rd-party factor in order to generate instant cash flow. Factoring allows the trucking company to work with a variety of brokers and dispatchers. Even if the factoring company requires credit checks, the pool of potential clients includes thousands of brokers and customers, and some factoring companies offer the credit check service for free.
The other major advantage to a factoring company is simply the fact that they succeed when you succeed as a trucking company, so your goals are completely aligned. If you make high-paying freight and increase volume, the factoring company earns more as well. In fact, the top factoring companies will offer a dispatching service, to find and negotiate high-paying freight for you.
The fees for factoring are typically higher than quick pay, but the payment turnaround time is generally faster. Many factoring companies can pay trucking companies the same day as delivery. The fastest factoring company can get trucking companies paid an hour after receiving load paperwork. In addition, some factoring companies allow trucking companies to submit multiple invoices at the same time, which cuts down the trucking company’s processing cost.
Pick the Option Best for Your Business
If you decide to use quick pay, pay attention to the loads your broker is offering. Make sure you accept loads that are good for your business and avoid the quick pay trap. If you decide to factor, ask about their fees and benefits to make sure you are getting the best deal for your money.