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Thinking about Flat Fee Factoring? Make Sure Your Deal is Simple and Flexible

By 01.13.22May 3rd, 2022No Comments

Freight transportation is a fast-paced industry requiring constant action to source loads, deliver freight and maintain operational efficiencies. To keep up with these and other continuous demands, it can be very beneficial to keep your financial contracts as simple and flexible as possible. To achieve this goal, many busy trucking companies have discovered immense value in utilizing flat fee factoring to improve cash flow.

But not all factoring companies make flat fee factoring as simple and flexible as you might think. This article will discuss how to recognize the best flat fee factoring arrangement to meet your needs as a truck company owner when researching invoice factoring companies.

What is flat fee factoring?

Factoring arrangements are typically characterized by terms, of which the fee structure is the most defining. The four typical fee structures are:

– Split fee

– Daily fee

– Prime plus fee

– Flat fee

The flat fee structure is a percentage of the invoice; a one-time cost for a set time (the recourse period), usually 60 or 90 days. No matter when the customer pays their invoice within the recourse period, the fee will be the same.

The simpler the terms of a factoring arrangement, the easier it is to manage. Flat fee factoring is the most popular form of freight factoring (factoring for trucking companies) — and for good reason. Flat fee factoring is the easiest fee to calculate and the simplest to monitor account balances, track transactions and manage credit limits. It is a low-maintenance financing option for busy operators and company owners to easily manage on a mobile device or office computer.

Not all flat fee factoring arrangements are structured the same.

As much as factoring companies may differ, so too will the flat fee factoring arrangements they provide. If not crafted with beneficial features, flat fee factoring may encumber your trucking company with simple but rigid terms that reduce its potential to maximize value. Following are five features to look for when investigating the best flat fee factoring arrangement for your trucking company.

Responsive rates

Factoring is a volume-based business. The more invoices and the higher the invoice values submitted per month, the better the factoring rate should be. Let’s say you have one truck and sign onto a factoring agreement with a flat fee set at 3%. That may work for you at the time of signing the contract, but what about changing conditions? Now let’s say you have a stellar month and double the expected dollar volume of submitted invoices for funding. Or perhaps it’s six months later, and you’ve grown to a fleet of five trucks. Is your factoring agreement flexible enough to respond and adjust; to reward your increased volume of funding? To get the best value for your business, look for a factoring company that offers the flexibility of responsive rates.

If your factoring provider offers a rate structure that goes down as your volume goes up, your company will be rewarded for surpassing expectations and achieving higher revenues. In simpler terms, with responsive rate structures, the more you factor, the lower your fees. Each month your fees are assessed on the total dollar volume of monthly receivables purchased by the factoring company. If dollar volumes push you into a higher tier of funding, fees should automatically be adjusted to reflect your success. Look for a factoring company that offers this flexibility – and remember, reducing the cost of financing (responsive rates) is not a common feature of most factoring arrangements.

One cost for 90 days

The factoring recourse period is the time allocated by the factoring company for your customer to pay their funded invoice. When the factoring company receives full invoice payment, any reserve funds due to the trucking company or outstanding fees due to the factoring company are paid, and the transaction is considered complete.

The most common recourse periods offered are 60 days and 90 days. Within the industry, a 60-day recourse period is considered short. A 90-day recourse period is the more flexible option and is preferred by most trucking companies.

A true flat fee factoring arrangement will remain fixed for the entire recourse period. No matter when the invoice is paid during the specified period, the flat fee (i.e. 3%, as per our previous example) is the total factoring rate you should be charged. However, you should be aware that some factoring companies may manipulate this cost. In this case, the flat fee would hold for 60 days and then additional fees may kick in for the remainder of the 90 day recourse period. In this example, if an invoice is paid in 65 days, the factoring rate would be 3% plus. This tiered approach is contrary to the principles of a flat fee, is more complicated to manage, and can be misleading. Be sure the factoring company you deal with is transparent and straightforward. Have them explain the recourse period, and whether the flat fee applies for the full period. The ideal flat fee rate is one cost for 90 days.

100% advance

When factoring companies fund invoices within 24 hours they typically advance a percentage of the invoice and hold back a reserve. The advance is usually 90 to 95 percent of the invoice face value. The reserve is then paid out to the trucking company when their customer pays the invoice to the factoring company in full.

The reality is, it’s your money, you need it now, and the more the better! Look for a factoring company that goes beyond the norm and advances 100% of the invoice face value with no reserve and no delay. Trucking is a capital-intense industry, the more working capital at your disposal, the more agile your operations become.

Recourse and non-recourse factoring

Although flat fee factoring is available through most freight factoring companies, not all offer a non-recourse option. The difference between recourse and non-recourse factoring is the level of protection against non-payment of invoices by your customers. This extra protection comes at an additional cost, but it may be a valuable option to consider, depending on your current and future customers’ payment habits. If your factoring company only offers recourse factoring, you may have lost a valuable contract option. And this can be a particularly important option to help you maintain financial stability and operational flexibility during economic disruption and industry volatility.

Terms that make sense for both parties

It is equally beneficial for both the factoring company and the trucking company to depend on each other’s continued business. To provide the best factoring rates and service, reputable factoring companies will expect to have defined relationships with their clients. By the same token, trucking companies should have a binding commitment from their lender to provide ongoing funding as per terms.

One of the key questions then is what constitutes a reasonable term for both parties? The answer comes in two parts:

  1. No-obligation trial period

First, to best assess the benefits of any factoring agreement, select a factoring company that offers a no-obligation trial period. This feature typically allows up to 90 days to test drive the program before you commit to the agreement.

  1. A one-year term is good for both parties

The purpose of a contract is to establish stability, not intentionally lock one of the parties into a long and arduous relationship. A one-year contract tailored to your needs proceeded by a no-obligation 90-day trial provides financial stability with the greatest flexibility. Avoid at all costs any factoring agreement that locks your business into multi-year terms or has undefined termination penalties.

Make it all work for you.

The advantages inherent in freight factoring are meant to be liberating for truck company owners. If appropriately structured, factoring contracts will accelerate cash flow, position your company for growth, and make your life as a company owner easier. When arranging terms for your factoring agreement, keep it simple, flexible, and affordable, you’re too busy to manage anything less! To achieve this ideal, be sure to partner with a trusted factoring company rich in transportation experience and dedicated to superior customer service.

 About eCapital

eCapital’s roots are deeply grounded in the trucking industry. With over 25 years’ experience in transportation financing, our organization is structured on a foundation of industry knowledge. Strategic partnerships and collaboration with VISA®, the world leader in digital payments, bolsters eCapital’s push to extend the boundaries of flexible funding. eCapital customers benefit from access to more funds, faster, and with more convenience than competing lenders can provide.

Building relationships based on integrity and trust, we deliver easy-to-manage cash flow solutions you can count on every day. To ensure new customer confidence, we provide a 90 day trial period free of commitment. If, for any reason, you are not satisfied with the industry-leading factoring services we provide, give notice, and exit the factoring contract without obligation.

For more information about how flat fee factoring supports your trucking company through changeable conditions, from economic uncertainty to business growth opportunities, visit eCapital.com

eCapital Corp. is committed to supporting small and middle-market companies in the United States, Canada, and the UK by accelerating their access to capital through financial solutions like invoice factoring, factoring lines of credit, asset-based lending and equipment financing. Headquartered in Miami, Florida, eCapital is an innovative leader in providing flexible, customized cash flow to businesses. For more information about eCapital, visit eCapital.com.


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