Cash flow inconsistency is one of the issues that the trucking companies face. Slow payments are added to your formula for running your business when you are dependent on clients paying you back. This is often difficult, especially when operating expenses such as the price of gas and maintenance change with the seasons. You can avoid this problem with the assistance of the freight factoring service and enjoy a high cash flow throughout the year.
In the event you have been wondering what a factoring company is, how does a factoring company work? We will consider the factoring in some detail.
What is a Factoring Company?
A factoring company refers to a financial establishment that purchases outstanding bills at a discount. In a case where a business, e.g., a trucking company, sends out invoices, it might take weeks or even months to get customers to pay. The fillers of such cash flow gaps are factoring companies that lend immediate capital on invoices.
Freight factoring companies deal with companies in numerous sectors, which include trucking and transportation. These are enterprises that are highly vulnerable to cash flow problems. Everything that is beyond your control, such as the cost of energy and the weather, influences how your customers can pay their bills in a timely fashion.
How Does a Factoring Company Work for Trucking Businesses?
Freight factoring (also called invoice factoring) can be very helpful to trucking companies. The steps that you would follow in the case of a truck invoice factoring are as follows:
- Once you have made freight invoices, you send them to the factoring company with a copy of proof of delivery (POD) and any other backup documentation that your customer may need.
- You receive an advance within 24 hours of confirmation, at a ultimate 9of 5 per cent of the invoice amount.
- Factoring firms are paid for by brokers or shippers.
- On getting paid, you receive the remainder after deductions of fees.
You can use this money to pay the gas bills, repair your cars, payroll, or anything you want when you receive the payment from the factoring company. The other benefit, besides cash flow injection, is a reduced amount of administrative work. The factoring company has become your business partner and collects it on your behalf.
How Much Do Factoring Companies Charge?
Whichever form of financing you think of, you must take the fees into consideration. Another benefit of factoring is that, unlike a bank loan, there will be no credit check or charge to pay interest charge. But factoring firms pay. You must take into consideration some variables depending on the people you are doing business with.
You can be charged flat or on a variable basis. With the flat rate, you are charged the same rate irrespective of the time your customer pays the invoice. In the case of variable rates, the higher the rate increases, the longer the customer will pay.
- The average commission that the freight factoring companies charge is between 1-5 percent of the invoice. The rate is dependent on various aspects.
- The value of invoices is dispatched.
- Credit ratings for your customers.
- Factoring is either recourse or non-recourse. Under recourse factoring, the unpaid invoices are the responsibility of your business. Under non-recourse factoring, everything in the risk is assumed by the factoring company; hence, you will be charged a high fee.
In cases where you are conducting research into subjects like the amount factoring companies charge, you are supposed to learn the conditions of your contract. Bet on open rate companies. Ask questions in case there is something you are not sure about.
Why Should Your Trucking Company Consider Factoring?
Trucking companies are normally in a desperate situation because of cash flow. You have massive costs that include fuel, repair, and insurance for trucks. Meanwhile, 30 to 90-day payment cycles are prevalent. These are just some of the reasons why freight factoring or truck invoice factoring can be a great solution for transport and trucking companies.
- Assists you in getting a constant flow of cash. Through transportation invoice factoring, you can be assured of the availability of cash to pay all your bills.
- Your company will develop more quickly. As the cash flow increases, you will be able to hire additional staff, acquire additional equipment and trucks, and accept more loads.
- You are not financially stressed. Factoring is charged on a per-sale basis. You do not even have to worry about borrowing money and paying interest.
Choosing the Right Factoring Company
If you wish to choose the most suitable factoring company for your enterprise, remember these questions.
- Do they truck? You want to deal with someone who knows what you require.
- Do they have good rates and easy policies?
- What is the type of UCC-1 (Lien) they put? Blanket (all assets) or Limited (invoices only).
- What kind of other services do they offer? As a case in point, they can perform credit checks on your clients or issue fuel cards.
Wrapping Up
So, freight factoring service providers are an option that is worth considering for a carrier in terms of financial concerns, as it helps to avoid being a drag of customers who pay slowly. Carriers will be able to reinvest in the business, exploit new opportunities, and grow incrementally without any debt due to instant access to cash. Freight factoring is the speed that you need in a time-dependent business, i.e., in a hurry.