Owners of small trucking businesses know the importance of tracking costs. After all, it’s pretty hard to tell if you’re making any money if you don’t know what it costs to operate.
Is $2.50 per mile adequate for your business? If your operational cost is $2.60 per mile, it’s obvious that profits are not in your future.
With profit margins being slim even in the good times, delays in payment from customers can be devastating. Many carriers turn to factoring to keep the cash flowing into the business.
While factoring can be beneficial to the overall health of a business, it comes at a cost. Even so, those who use factoring services choose to give up a percentage of the revenue if it means reducing or eliminating the wait for the cash.
The problem is knowing how much you’re giving up.
Like interest on credit cards, factoring fees can seem minimal when looking at short-term charges. When viewed on an annual basis, however, those charges can consume a larger-than-expected chunk of business income.
For example, a 2% fee on one 30-day invoice doesn’t seem like a lot — until you consider that it equates to a 24% annual percentage rate (APR). A business owner who would turn down an offer for a credit card with a 24% APR may be unaware they’re paying that much or more to factor invoices.
Yasir Riaz, founder and developer at TruckMargin has developed a calculation tool that the website is offering free to trucking businesses. This tool can help owner-operators and small business owners calculate the true cost of factoring their invoices.
How does it work?
The free calculator considers the fee percentage, typically 1%-5%, the number of days to pay and whether the payment is recourse or non-recourse, along with other factors.
Riaz says the tool is “a transparent, calculator-backed benchmark across common fee and days-to-pay scenarios, with every assumption shown.” He stresses that the free calculator is not a survey and that it uses no proprietary data. It’s a simple calculator that is free to trucking business owners, who plug in their own actual data. The factoring calculator can be found here.
According to Riaz, typical owner-operator fees for factoring run 2%-3.5%. At 5%, the APR rises to 60% — an amount that most would never consider for a bank loan or a credit card fee.
Advances can add to a business owner’s final cost.
Another common practice that occurs in factoring is that advances are typically not for the full amount. It’s common for the factoring company to advance 95% or less of the full amount, holding the difference in reserve until payment is received from the customer.
According to Riaz, this practice can add another 3%-6% to the total cost. Non-recourse factoring costs even more, with factors holding 10%-20% of the expected revenue in reserve. Riaz refers to this money as “trapped working capital,” and provides a calculator to help owners understand the true cost.
Factors DO provide valuable services. Riaz isn’t against use of a factor to keep the cash flowing. In fact, TruckMargin partners with Summar, a factoring company that may contact you to offer their own factoring service — but only if you fill out the consent form.
Free online tools can help trucking businesses grow.
Riaz says he built TruckMargin to provide free tools to trucking business owners that can help them better understand their businesses.
The factoring calculators have been added to a long list of established online tools for truckers.
The homepage at TruckMargin.com offers a cost-per-mile calculator that allows the user to input fixed costs like truck payment, insurance and permits, as well as variable costs, fuel mileage and more — like the rate you pay yourself. The result is an accurate reflection of an owner’s true operational cost per mile, including a per-mile “break even” point. You can even insert a desired profit margin to calculate the cost-per-mile you’ll need for each load.
Note: A recent study released by the American Transportation Research Institute (ATRI) concluded that the average all-in cost to operate a truck is about $2.34 per mile.
You can choose to save the information you input on TruckMargin’s website so that you won’t need to re-enter it each time you visit the website. You can also have the calculation — including your input information — emailed to you so you can check it offline.
Another handy tool is the lane calculator that allows you to see what other owner-operators are reporting for specific freight lanes and to input your own rates.
The TruckMargin website contains all sorts of handy calculators that are free to use.
Per diem calculators help you track non-taxable dollars, while IFTA calculators help you figure out fuel tax liability plus any penalties you owe. There are different calculators for all sorts of trucking scenarios. And, you can subscribe to a weekly “owner-operator brief” that includes the latest in freight rates, fuel prices and more valuable information.
While the calculators and information are free, the website does offer a “Pro” version at a rate of $9 per month.
The subscription allows you to enter and save information for individual trucks. For example, two trucks with different monthly payments will have different operating costs, so the software lets you calculate them separately. The system tracks individual loads, costs and profit margins, and even sends you rate alerts on freight lanes that your business actually runs. Your records can be sent to you as a pdf or csv file so you can use the data to calculate your taxes or provide the documents directly to your accountant.
A disclaimer on the website promises that your data remains private and will never be sold.
A paid membership is not needed to use any of the calculators, however.
If you’ve been thinking of keeping more information about your business but aren’t sure how to do the calculations or you’re too busy moving freight to get bogged down in all the math, TruckMargin gives you tools that help keep your business organized. More importantly, the calculators provide information you need to make sound, informed business decisions. You can calculate your costs and determine if an offered load will be profitable.
Cliff Abbott is an experienced commercial vehicle driver and owner-operator who still holds a CDL in his home state of Alabama. In nearly 40 years in trucking, he’s been an instructor and trainer and has managed safety and recruiting operations for several carriers. Having never lost his love of the road, Cliff has written a book and hundreds of songs and has been writing for The Trucker for more than a decade.
