What Is the Average Cost of Truck Factoring?

Trucking is a cash-flow-intensive business. However invoicing delays after hauling freight can strain finances, especially for small carriers or owner operations. 

Factoring accounts receivable is one way to liberate working capital quickly, converting invoices to immediate cash minus a fee and freeing up much-needed funds. This line of business is estimated to grow 8.1% from 2022 to 2030 to beat the USD$147.40 billion in 2021.

Yet, with so many factoring firms promising the fastest cash and lowest rates, how do you know you’re getting a good deal? Before signing any contract, getting clear on what impacts pricing allows you to optimize costs on this useful financing tool.

Here’s a walk through what dictates factoring rates.

What Impacts Truck Factoring Rates?

While factoring fees typically range from 1% to 5% of each invoice factored, the actual rate you pay depends on several key factors.

  • Factoring Company

As you research factoring companies, you’ll notice the rates quoted vary quite a bit. The truck factoring company you choose can have a big impact on your bottom line. 

It pays to get multiple quotes, thoroughly vet each provider, and negotiate the best overall value. The largest, most reputable national factoring firms often leverage their scale to offer very competitive rates.

  • Invoice amount

The size of your invoices sways pricing. For example, a factoring company charges a 2% fee on the invoice amount along with a USD$10 per invoice flat fee for processing.

If you submit a USD$1,000 invoice to be factored, you’ll pay 2% of it, which is USD$20, plus the USD$10 flat fee, for a total fee of USD$30. That represents a 3% overall rate on the USD$1,000 invoice.

However, if your invoice was USD$10,000 instead, the fees would be 2% of it, which is USD$200, plus the USD$10 flat fee, for a total fee of USD$210. That represents a 2.1% overall rate on the USD$10,000 invoice.

You can see with the larger USD $10,000 invoice, the flat fee makes up a smaller portion of the total costs, bringing down the effective rate you pay. This is why companies with higher average invoices can often negotiate better percentage rates with their factoring.

  • Customer credit history

Factoring companies take on the risk of collecting those invoices from your customers. If your customer base has strong credit, representing low default risk, you’ll generally get better pricing compared to scenarios where that B2B credit risk is less predictable.

  • Factoring type

You’ll also want to understand whether the factoring agreement makes you or the factor responsible for bad debts. This is the difference between non-recourse and recourse factoring. With non-recourse agreements, the factor takes on collection responsibility, so rates tend to be a bit higher.

Breaking down fee structures

Some factoring firms offer more of a flat-fee approach, charging a standard per-invoice rate regardless of the invoice amount. This can provide more predictable costs month-to-month. For a company generating lots of smaller invoices, it also caps the fees per invoice, avoiding high percentage fees that might eat into slim margins on small-ticket loads.

The catch with flat fees, however, is they hit much larger invoices disproportionately hard. Paying a USD$25 flat fee on a USD$500 invoice means a 5% fee. But that same USD$25 flat fee is only 0.5% on a USD$5,000 invoice. So, as your average invoice size climbs, a flat fee loses cost-effectiveness, making variable percentage fees often preferable for larger freight bills. 

Tips for securing the best rates

Cost of Truck Factoring

Here are some proven tips:

  • Consider your needs

Is optimizing cash flow or offloading admin your pain point? Do you need non-recourse protection? This self-awareness allows you to zero in on the right solution and avoid over-paying for unnecessary bells and whistles.

  • Shop around

Cast a wide net with both large national factors as well as regional players. The quotes on percentage fees and overall structure can vary widely, so dedicating some time upfront to run a competitive RFP process pays dividends.

  • Negotiate

Factoring sales reps often have some flexibility to adjust terms, especially when they have active competition. Reports indicate that some factor companies can advance between 70-90% of the total amount. This leaves room for you to push a bit on rate, exclusivity clauses, out clauses, and length of contracts. Know your leverage points and use them.

  • Understand fees before signing

Account maintenance, fuel card, early termination, and low invoice fees, as well as any other charges, add up. Comparing total all-in costs rather than just the percentage rate gives you an accurate picture.

In closing

Getting competitive factoring rates for your trucking business just requires some savvy comparison shopping, negotiating leverage, and focusing on your operating priorities. 

Securing the working capital fuel to grow your trucking company without overpaying factoring fees lets you redirect more profits to where they matter most – your bottom line. 

Keep these tips in mind and you’ll likely end up with the best fit for your business needs and budget.

Leave a Reply

Your email address will not be published. Required fields are marked *