Most factoring companies charge a rate based on a % basis, that is they charge a fee that is a % of the amount that is factored. These % fees will depend on the amount of money factored. Generally speaking, the greater the amount of money factored then the lower the fee. In the trucking industry it is not uncommon for a single truck owner operator to see rates up to 5%. Small fleet operators that operate 10 or more trucks can can to see rates 2% or less. Many factoring companies will use the number of trucks a trucking company is operating as they can estimate well how much revenue a single truck should generate in any given month. The base rate is one of the most important aspects of what a factoring company will charge but there are other fees that can be significant that you should look for and be aware of.
While the factoring rate is the largest and most obvious component of what a factoring company will charge there are a number of other fees that should not be overlooked. A reserve account is similar to an escrow account which is used to hold back funds by the factoring company. They do this to provide some protection for bad debt. Reserve accounts can be a % of each invoice, a flat $ amount per invoice or a flat $ amount per account. Reserve accounts, like escrow accounts, release money back at some point, make sure you understand what triggers money to be released, most often it will be passage of time or payment by shippers to the factoring company.
Invoice fees are another common fee charged by factoring companies. This is typically a small fee of $1.00 – $10.00 per invoice submitted for payment and can be described as a processing fee. Each invoice submitted does require work for the factoring company and while these are not uncommon fees not all factoring companies charge these fees.
Payment fees are also common. Once an factoring company gets paid they need to get money to you and they can typically do this a number of ways from cutting you a paper check, ACH direct deposit to your bank, wire transfer to your bank, deposit to a fuel card or T-Chek or Comcheck. Each factoring company may charge a different amount for each of these different types of payment so ask questions and make sure you understand before you are surprised.
Other Factors Influencing Your Rate
A carriers credit score can influence the rate that they can expect to receive. Most often their credit score may be more of a gating factor as to whether a factoring company will work with a carrier. Recourse vs. non-recourse. Factoring companies that offer non-recourse programs generally do so with higher fees than standard recourse programs. This area too you should be careful with as many non-recourse programs do not offer the protection that may carriers are led to believe they do. Most often, carriers are led to believe that if a shipper doesn’t pay they are protected in a non-recourse agreement. In practice, they are typically protected if the shipper becomes insolvent or files bankruptcy, something quite a bit different than simply non-payment or slow-payment for most any other reason.