How to Use Factoring to Finance your Trucking Company
Do you own a logistics company that needs financing? Read this article to learn about freight bill factoring.
Financing a business,
especially in today's environment, is very challenging. Trucking companies, by their nature, are cash intensive. You have a continuous outflow of expenses. Fuel. Drivers. Maintenance and all the other expenses that must be constantly handled. Income, on the other hand, is more challenging. It tends to be irregular because more clients pay their invoices in 30 to 60 days.
In summary, you have regular expenses but irregular income. This creates a gap that is opened at expense time and closed once the income arrives. And unless you have enough funds to cover the gap, your trucking company will run into serious problems.
One way to cover the gap is to get clients to pay sooner. This can work sometimes, provided the client is willing to pay quickly. If they are not, your only alternative is to get business financing. This can be very challenging, especially in the current lending environment. Getting a business loan is a long complex process that has a lot of uncertainty. Fortunately, small business loans are not your only option.
If your biggest challenge is that you can't afford to wait for your clients to pay, you should consider an alternate form of financing called freight factoring. In essence, freight factoring is the equivalent of getting a quick pay. But the quick pay does not come from your client, it comes from the factor.
The transaction is fairly simple. You sell your invoice/freight bill to the factoring company, who gives you an initial advance of 90% of the invoice. This advance can be higher in certain circumstances. You get the final advance of 10% (less the factoring fee) once your client actually pays the invoice.
One of the big advantages of freight factoring is that most factoring companies look at the credit quality of your invoices as your most valuable asset. This is very important - because small companies with a solid roster of clients can usually qualify. One further advantage is that a factoring program can be set up quickly - usually in about a week.
In conclusion, freight factoring can be an ideal solution for business owners that cannot afford to wait 30 to 60 days to get paid.
