Freight Factoring - Financing for Carriers and Brokers

May 21
07:22

2008

Marco Terry

Marco Terry

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Read this article to learn how accounts receivable financing can help you grow your carrier or freight brokerage.

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Running a transportation company,Freight Factoring - Financing for Carriers and Brokers Articles a carrier or broker, has always been a financially rewarding career. When run properly and professionally, they can grow beyond your expectations. At the same time, they present financial challenges as well. Transportation is a cash intensive business with many expenses that can’t wait. There are drivers, fuel and repairs that must be paid for. However, clients can take a long as 60 days to pay their freight bills. Waiting up to 60 days to get paid can be very taxing, especially for new or rapidly growing companies. Few have the required cash reserves to cope with the increasing expenses of growing a venture. One traditional alternative is to look for a business loan. However, business loans are not always suited to handle operational expenses. They are better suited for buying assets, such as trucks. There is a form of business financing  that is ideal for funding operational expenses. It’s called factoring and it’s offered by factoring companies. Factoring freight bills provides carriers and logistics companies with immediate liquidity and enables them to meet business expenses on time. It eliminates the juggling act of managing client payments and business expenses, greatly streamlining business operations. Basically, when used properly, it provides an effective platform for growth. A/R factoring, as it is commonly known, integrates very well into transportation companies. It works by providing an advance of up to 90% on your invoices. The advance is provided immediately upon invoicing. You get the balance (the remaining 10%), less the financing fee, once your clients pays for the invoice in full. By using freight factoring, you are doing the equivalent of putting your business on a Cash on Delivery (COD) basis. This simplifies operations as you limit (or even eliminate) worries about collections and payment tracking. There are two important requirements needed to qualify for factoring. First, your company must do business with good clients. This means that they must be reputable companies that pay their invoices in 30 to 60 days. Second, your company must be free of liens and legal issues. What makes factoring freight bills different than conventional loans is that startups can successfully obtain financing provided they have a roster of solid customers. Factoring does not work in every situation though. It works best if your main challenge is that you can’t wait 30 to 60 days to get paid by clients.

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