Freight Factoring Rates Explained: How Rates are Determined at Denim

If you’re wondering how factoring companies determine their rates, don’t worry, you’re not alone. While almost 60% of freight brokers use freight factoring, the lack of transparency around how their rates are determined can be confusing and frustrating.
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While many factoring companies will try and hide this info, in this article we’ll break down some of the most important components used to calculate your base rate, like client payment terms, load volume, and carrier payment schedules. 

We believe every broker deserves complete clarity on how their factoring rates are determined, so they can choose the right partner based on their current business needs. 

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Why Transparency in Factoring Rates Matters

Most brokers have almost no information on how factoring rates are determined, but not for lack of trying. It can be like pulling teeth to try and find out what affects your rates from a traditional factoring company.

These unclear pricing policies restrict brokers, making it more difficult to price their services, negotiate rates, and set terms for clients. Let alone comparing one factor to another!

With a better understanding of which parts of your business impact your rates, brokers can make better-informed decisions. For example, a broker might offer favorable payment terms to an important shipper, without realizing this will hurt the rates they receive from their factoring company. 

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The 3 Components That Determine Your Factoring Rate

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There are three components that have the biggest impact on your base factoring rate: Your client payment terms, load volume, and business history. This base rate is used as a baseline to determine your overall factoring rate.

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Client Payment Terms and History

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Did you know that your client’s payment behavior can impact your base factoring rate? This is one of those often hidden metrics that can confuse brokers when comparing factoring rates.

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Your client payment terms are the number of days your client has to pay an invoice - such as Net-30, Net-60, or Net-90. These terms generally align with the amount of time it takes for your clients to pay invoices, known as “Days to Pay”.

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A shorter Days to Pay history for your clients will improve the rates you’ll be offered from a factoring company. Brokers with Net-30 terms and a history of clients paying within 30 days will receive the best rates from factoring companies.

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When clients pay invoices quickly, the risk for the factoring company is reduced, allowing them to offer better rates. If your clients historically pay your invoices on time or early, but your clients have Net-90 terms, you’ll still likely get a worse rate than another broker with Net-30 terms. 

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Load Volume

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The next component that helps determine a broker’s rates is their load volume - higher and steadier load volumes demonstrate predictable revenue, which can work in your favor as a broker. 

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Brokers with consistently high load volumes will receive better rates from factoring companies than those with fewer loads or less consistency. When brokers have higher load volumes that are consistent, their business is seen as more reliable and safer than those with less volume. Predictable revenue streams give your factoring company a more accurate risk assessment when determining rates, which can help them offer you lower rates.

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Business History

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The last major impact on your factoring rates is your business history as a broker. This is closely tied to your credit history and broker credit score, as well as other business history such as:

• Years in operation
• Historical payment performance (e.g. paying invoices on time, not missing payments)
• Overall business stability and/or growth
• Industry reputation 

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Businesses that are well established, have years of positive credit history, and a proven track record with lenders and vendors are far more likely to receive favorable payment terms. 

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Flexibility Beyond the Base Rate

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We understand that your business needs can change over time (sometimes overnight!) which is why we give you control after your base rate has been determined.

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Denim’s flexible factoring lets brokers choose the timing of invoice advances, saving on fees while also maintaining the flexibility to receive advances within minutes when cash flow gets tight.

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Brokers can also set carrier payment schedules, based on your needs and the needs of your carrier, providing flexibility and corresponding rate adjustments as needed.

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Learn more about how Denim determines your factoring rate, and plug in your details to our freight factoring calculator here.

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How Denim Stands Out

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We’ve built our factoring services from the ground up to focus specifically on the needs of brokers like you, with a dedication to transparency and flexibility that helps you get paid faster, reduce back-office stress, and put control back in your hands.

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Unlike traditional factoring companies riddled with hidden fees and complex terms that keep brokers in the dark, Denim provides:

• A transparent process for determining your base factoring rate, with no frustrating hidden fees or surprise charges.
• Clear rate calculations based on your needs for faster advances, carrier payment schedules, larger advances, and more.
• Built-in tools and resources to help you manage and optimize your cash flow.
• The flexibility for every broker to adjust your rates based on your unique business needs.

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With the tools and insights brokers need to make informed decisions, Denim’s flexible approach ensures you’re never locked into a one-size-fits-all solution.