Quick Pay vs. Factoring: Which is Right for Your Business? (Part 1)
November 9, 2016 Comments Off on Quick Pay vs. Factoring: Which is Right for Your Business? (Part 1)
This article is the first of a two-part series on choosing the right load payment terms for your trucking business.
Regardless of fleet size, if you own or manage a trucking company you know steady cash flow is the key to maintaining operations. How can you avoid waiting long periods to be paid for your work? Two options for trucking companies are Quick Pay and load factoring. Each has its pros and cons. To choose the best option for you, it’s important to understand the basics of each.
Quick Pay offers accelerated payment terms directly from the broker in exchange for a processing fee, which is a percentage of the agreed-upon load rate. The percentage varies by broker, but usually ranges from 1-4 percent. Once you have delivered your load, submit your bill of lading (BOL), invoice and other load documents to the customer for payment. Most brokers offer several methods for submitting load paperwork. Often, paperwork can be uploaded directly into the broker’s accounting system using software products designed for the trucking industry. Once the broker receives your paperwork, payments are usually made within 2-4 business days.
Load factoring offers an alternative for processing and accepting load payments. Very simply, factoring is using a third-party agent to buy your outstanding invoice. Once you negotiate a load rate with a broker, a third-party factoring agent advances you a portion of the rate (usually between 80-95 percent) immediately upon delivery of the load. The factoring agent collects the full invoice amount from the broker. Upon payment of the invoice, the factoring agent pays the remainder of the full amount due to you – minus the percentage fee the agent takes as payment for service. This percentage fee varies depending on the credit rating of the customer and the value of the load. Typical fees fall between 1-5 percent of the load rate.
Factoring agents usually make payments within 24 hours of delivery confirmation by direct deposit or wire transfer. These expedited payment forms may also be subject to additional fees by the factoring agent – ranging from $10-30 per payment.