What are the best type of freight factoring rates?

Not all rates are created equal. There tend to be three types of rates you will see in the wild: Flat Rates, Tiered Rates, and Volume based Rates. Flat rates are the bread and butter for many owner-operators, offering straightforward, predictable terms that most folks can feel comfortable with. However, if you’ve got high-volume hauls or fast-paying clients, tiered and volume-based rates could be the secret weapons you didn’t know you needed. Let’s dive in, so you can decide which type of rates are best for your business.

Flat Rates:

Flat rates in the factoring industry tend to be the most common rate structure among owner-operators and fleets because they are the most straightforward and predictable. Flat rates typically fall between 2 and 3.5%, so you shouldn’t pay more than that.

• Pros: The rate is consistent regardless of your volume and how fast or slow your customers pay the factoring company. This gives you predictability in what your monthly rate will be and protects you against slower or late-paying customers.
• Cons: You might be eligible for a better rate with a different fee structure especially if you’re hauling high volumes and your clients pay quickly
• Note: Even with flat rates, some companies will try to throw in hidden charges into the factoring contract. They will “bait and switch” with low rates upfront, but then hit you with ridiculous fees later on, so make sure you read your contract thoroughly and ask these questions before signing.

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Tiered or Variable Rate:

In this situation, the rate you pay on each invoice factored will be based on how quickly your customers pay the factoring company. Sound scary? It could be. It really depends on how confident you are in your customers' ability to pay quickly. Tiered rates typically fall between 1 and 4%.

• How does it work? These types of contracts might be laid out in the following format: If your customer pays within 15 days, the fee is 1%; if your customer pays within 15 to 20 days, the fee is 1.25%; if your customer pays within 20-25 days, the fee is 1.5%; etc., up until a maximum of 60+ days (as an example) and a maximum 4% rate.
• Pros: If you have customers that pay quickly, you can reap some major funding speed benefits.
• Cons: If your customers take a while to pay, you could end up paying much more than you need to.

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Rate by Volume:

In this situation, the rate that you pay will decrease as you factor more invoices each month. These rates typically fall between 2 and 3%, but can vary based on the size of invoices you factor.

• How does this work? These types of contracts might be laid out in the following format: Your factoring rate is 3% if you submit less than $25k in invoices per month, but could drop to 2% if you submit more than $150k in invoices per month
• Pros: This is a great rate structure for fast-growing businesses that anticipate scaling their business or fleet over their length of their factoring contract.
• Cons: If you do not expect the amount you factor to change much over the course of your contract, you might be better off paying a flat rate

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Final Word

No one knows your situation like you. We've walked you through the most common types of rates, but always, always, always read your truck factoring contract so you know exactly what you're signing up for. If you're interested in a deeper dive on rates, common fees, and important things to note when reading your contract, click here.

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