If your trucking or transport business is looking for better access to working capital, consider freight factoring to help keep your cash flow healthy.
If your clients have good credit but are slow in paying their invoices — or if bank financing is not an option for your enterprise, invoice factoring is the solution you’re looking for.
Unlike most financing options, factoring can be provided relatively quickly — often in the same day. This time frame makes freight bill factoring especially attractive to companies that require cash in handin order to handle immediate cash flow issues. Here’s how it works:
– Your trucking company delivers freight as usual
– You send your factoring company a copy of the invoice
– An advance of up to 97% (minus a nominal factoring fee) is sent directly into your account (often on the same day you submit invoices)
– When the customer pays the amount owing on that invoice, the factoring company reimburses you the remaining 3% balance
Factoring in this way allows companies access to large amounts of funding because the more invoices a carrier issues, the more they can collect through automatic financing. Additionally, the factoring company will help you with AR management by running much-needed credit assessments of your customers.
Also, the harder you work, the more access to capital you’ll unlock as factoring is directly linked to a carrier’s sales. This ensures that start up trucking enterprises can find the working capital they need by adhering to a strong work ethic. And because approval for factoring is based on the credit-worthiness of the customers who owe on the invoices and not the carriers themselves, burgeoning businesses can sell numerous invoices at once to gain much needed early working capital.
Once you realize that you can let your invoice factoring company deal with your AR and collections, while also helping you redirect your time and energy elsewhere, you’ll feel ready to take your business to the next level.
Once a trucking company has decided to implement freight factoring to improve its cash flow, you must then decide whether to use recourse or nonrecourse factoring.
Nonrecourse factoring seems at first glance to offer the benefit of zero liability, which means that if the invoicing client does not pay the carrier bears no responsibility. But this is often not the case as the actual terms of most non-recourse contracts state that protection against financial loss are only valid if the invoiced client faces insolvency. If the customer cannot pay for reasons other than bankruptcy, the carrier remains obligated to not only pay advanced funds back to the factor, but a number of additional costs as well.
Recourse factoring is often the better option for trucking companies that are looking to factor their invoices. Here are some key benefits of recourse factoring to consider:
– HighCollections Success Rate: Reputable factoring companies rely on professional staff with extensive experience in collections pursuit to see that invoices are paid. Look for a freight factoring company with a high rate of success on collections.
– Recourse Factoring is considerably less expensive overall: Fees are typically 30% to 35% cheaper than Non-Recourse factoring fees because the credit risk is retained by the carrier.
– Less Credit Restriction: Recourse factoring comes with fewer credit restrictions than the alternative, allowing carriers to allocate funds elsewhere.
It’s no surprise that recourse factoring is the most common factoring option for trucking companies. It is more cost-effective and provides far fewer credit restrictions.