Quick pay and invoice factoring are two cash-for-truckers methods that trucking companies can leverage to get paid faster. Given that it often takes 60 to 90 days or more for carriers to get paid after completing a load and margins are tight, sluggish cash flow is a universal problem and both solutions can prove invaluable. However, because these payment accelerators work differently, it’s essential to know the differences between them before choosing one over the other. Use this page as a guide.
How Does Quick Pay Work?
Quick pay is a service provided by some brokers. In these cases, you’ll accept the load from the broker and then the broker will advance payment after the load is complete. Payment is usually delivered via wire transfer or direct deposit. Depending on your arrangement, payment turnaround time can take anywhere from one to seven days. You’ll generally pay additional transaction fees for swifter payments.
You must work with a broker or a freight broker agent who offers quick pay to qualify. Because quick pay is a broker-provided service, you must work with a broker who offers it every time in order to get your payment fast. That may not be a big deal if you have a broker who consistently gives you high-paying loads, but a freight broker company sources loads from many places. Furthermore, if you’re dependent on quick pay/fast payment, you may have to forego any higher-paying jobs or more consistent work offered through other sources that don’t provide quick pay. That’s a major catch-22, as repeatedly accepting lower-paying loads can stall your company’s growth and tie you into the quick pay trap.
Expect to pay a one to five percent gross margin processing fee for quick pay. The percentage fee will vary depending on the freight agent or broker, your terms, and often how fast you want your cash. However, you can usually expect to pay one to five percent of a load’s value when you choose quick pay.
What’s the Difference Between Quick Pay and a Fuel Advance?
Fuel advances are helpful for independent contractors who want to accept a load but don’t have cash on hand to cover the fuel, employee salaries, cargo insurance, marketing materials, and office supplies. The terms are similar to quick pay, but the amount is generally less, and cash is made available as soon as the load is picked up. It’s common for the advance to be placed on a fuel card rather than sent via wire transfer or a bank account. The major advantage of fuel cards is that the driver gets discounts on diesel at specific truck stops and often gets other perks like discounts on maintenance or tires. Fuel cards can also be helpful for those with fleets, as it makes it easier to monitor how and where cash is being spent. Both brokers and invoice factoring companies may offer fuel advances and fuel cards. However, truckers tend to avoid asking brokers for advances because it can signify financial distress, which may put the broker in a stronger negotiating position.
How Does Invoice Factoring Work?
Invoice factoring, also referred to as freight factoring or receivable factoring, is a service provided by a third party known as a factoring company. Instead of working with someone who is part of your existing arrangement, factoring involves bringing in a third party after you’ve completed the load. You’ll submit your invoice to the factoring company, and they’ll advance you most of the invoice’s value according to the payment terms. Timelines vary on this. Sometimes, you can get paid the same day as you submit your load paperwork. Other times, you might receive next-day payments or wait a little longer. When your client pays the factoring company, they’ll send you the remainder of the full amount minus a small fee. Some factoring companies offer additional services to accelerate your trucking company’s growth too, such as fuel cards, fuel advances, and asset-based lending, and freight broker software to assist your logistics planning.
You can work with almost any broker or shipper when you’re factoring. When you work with a factoring company, you’re not tied down to any specific broker or shipper. You can source your own loads, work with any dispatching service, and work with a variety of brokers. That means you can accept a better paying load whenever you find one and still get paid fast. However, the client paying the invoice must be creditworthy. Most factoring companies offer a credit check service to confirm the debtor is creditworthy and will insist on running a check prior to advancing your payment. For this reason, you’ll want to connect with a factoring company before you need their services. The approval process is generally quick and is not contingent on the business owner’s credit score, so most carriers will qualify.
Expect to pay a two to five percent factoring fee for invoice factoring. Although Viva’s rates start at just 0.25 percent, most invoice factoring companies charge somewhere between two and five percent of your invoice’s value. The final rate is dependent on your contract and considerations such as the size of the invoice, and your total volume.
Factoring vs Quick Pay: Pick the Option Best for Your Business
It’s generally thought the main difference is that factoring is more convenient and quick pay is more affordable, but there are exceptions to this. Viva’s low rates are a prime example. Of course, if you’re working with a broker who gives you a lower rate and enough work to keep you busy, there’s no harm in continuing with the quick pay option. However, many carriers appreciate the freedom to choose their loads and the improved bargaining power that come with working with a factoring company instead. Plus, there are times you find the best deal with a factoring company rather than a broker, too.
Request a Complimentary Factoring Rate Quote
One of the nice things about factoring is that you can qualify and find out your rate in advance, then hold off on using it until you’re ready. In this sense, you can use it as an immediate cash-for-truckers cash flow accelerant or tuck it in your back pocket for whenever you might need it. To explore your options, get a complimentary rate quote from Viva.