Trucking companies and businesses deal with tricky financial problems. They spend a lot of money to get materials to deliver to clients and are challenged with tons of expenses, like vehicle maintenance, fuel costs, insurance, salary expenses, etc. freight brokers go through the same dilemma.
Many freight brokers and trucking companies look for alternatives to receive financing to keep up with the economy.
Truck owners and operators and other small trucking companies face problems of getting their payment on time for their work. A trucker might have to wait 30-90 days for its clients to pay the invoices after the delivery is completed. Many small trucking businesses and even large companies turn to freight factoring, to keep the cash flowing when they wait.
WHAT IS FREIGHT FACTORING?
Freight factoring which is also known as trucking factoring is a type of invoice factoring that helps companies working under the transportation department such as owners and operators to convert the invoices that are unpaid into instant cash.
The trucking companies commonly use freight factoring to increase cash inflow when they do not receive payments from brokers and shippers on time.
Trucking factoring or freight factoring is an option that helps you with the cash inflow for your invoices by paying for work that you have already finished. They will pay you 80%-90% of the money of your invoice and then pay the balance that is left after deducting their fees once the client pays the invoice.
It is very important for your trucking business and company to maintain good cash flow. It is problematic if you have less cash coming in and more cash getting out. This could head you towards various financial issues. There are several ways to improve your trucking cash flow and also helps you to deal with financial problems.
Also read -: 7 Tips to Choosing Right Invoice Factoring partner
FACTS TO KNOW HOW FREIGHT FACTORING WORKS
Here are 7 quick facts to know about how freight factoring works.
SELLING OF INVOICES
Many business owners have a misconception when they use freight factoring is that the cash they get from this funding is a loan. The invoices are generally sold to the freight factoring companies; they then provide the quick cash to a trucking owner-operator or company.
In many circumstances, the company that sells the invoices get up to 98% of the total amount, the remaining portion is the fee that goes to the freight factoring company.
NO HASSLE OF COLLECTIONS
Once you sell the invoice to the factoring company, then the freight factoring company is only responsible to collect on the payments. This way, the owners and truckers do not have to waste their time and energy to chase clients for payments; this also lets them to not miss out on any important business opportunity.
It sounds like the freight factoring company is taking on a huge risk, but they are not. The factoring company you choose checks the credit history of the client that is involved, therefore there is very low risk involved in regards to collect the payments. This makes a win-win situation for everybody.
YOUR CREDIT IS NOT IMPORTANT
The credit ratings for the client play a very important role to determine if the freight factoring company would buy an invoice; in this process, your credit rating plays no role whatsoever. Even if your business has experienced bankruptcy, credit problems, and financial issues, these will not play any part in whether you can sell your invoices to a company or not.
This can be very beneficial for those businesses that require cash immediately to help a striving company to cover other expenses. Trucking owners and operators have many expenses to deal with.
FUNDS IN 24 HOURS
If your trucking business requires cash immediately and quickly, then freight factoring is a good solution to use. Once the freight factoring company checks and approves the invoices client’s credit history and agrees to buy the invoices, you only have to wait for some time, you can receive your funds in less than 24 hours.
Many factoring companies even accept faxed or scanned copies of your bills, this saves you time and mailing costs and the cash is put in your account much faster.
In many situations, you get funds in several hours or sometimes even on the spot. Payments can also be made rather quickly in person, by adding money to a fuel card, or by direct deposit, this money can then be used to buy fuel immediately for another project. Applying cash to fuel cards is a popular option since duel is usually the biggest expense for a trucker.
IT IS EASY TO QUALIFY
Whether you are an independent owner-operator of only one truck and limited customers or you are the owner of a big trucking company with large client base, it is usually easy to qualify for freight factoring and its services. It is easier for anybody that works in the freight and transportation industry to qualify.
Because of this reason, many small and new trucking companies and businesses use freight factoring to make the initial phases of their business much easier and sorted. Companies and operators are guaranteed to have a steady cash-flow from the start if they are using freight factoring services.
New businesses often face the issue of cash flow that directly affects their growth and development.
Factoring fuel cards and fuel advances offer extra help to trucking companies and businesses that have problems getting a loan. Fuel cards offer extra rebates from the truck stop companies, as well as discounts at many refuelling stations in Canada and the US. You can monitor spending and also add funds to your account when needed.
Fuel advances are a cash advance that you receive when you pick up the load. You can cover fuel costs on the road as freight factoring companies will give you a small percentage of the freight bill. This provides you with extra convenience.
Many freight factoring companies allow you to factor the invoices that you want to factor, not less and not more. Sometimes there will be customers who pay you right after delivering a shipment, many factoring companies won’t need you to finance for those invoices.
If you partner with a flexible lender, trucking companies can use freight factoring as frequently or infrequently as they would like.
These are some important facts you should know about how freight factoring works.