Factoring Invoices To Grow Your Trucking Company
At one time or another, a trucking company or freight broker business will experience growing pains. Even when a trucking company has steady freight, it can suffer from poor cash flow due to the rising cost of being a service provider within transportation.
Early on, a trucking business or freight broker business might have a handful of clients, and might have one or two slow-paying clients. But with growth, that wait time – not to mention the stress – can be compounded as the invoices stack up with each new client. Your trucking company continues need cash to keep fuel and drivers paid and waiting can become to much. Waiting 30 days or sometime up to 60 days can be a burden for any trucking company, and in most cases many new trucking company’s have had the shipper that did not pay. This can literally out trucking company’s out of business.
When shippers fail to pay on time or not at all, as a trucking business owner, you have a myriad of expenses needing to be paid with the money tied up in those invoices: vendor payments, payroll, state and federal taxes and investments back into your business.
Increasingly, more and more trucking businesses are turning to factoring companies to close the gap between waiting and getting paid. Factoring, also known as accounts receivable financing, provides trucking business owners access to the money from their invoices
Unlike a traditional business loan or line of credit, factoring is a quick and easy way to your own money – without the debt or tedious collections process. Imagine having access to 95 percent of your invoice balances within 24 to 48 hours.
The quick turnaround time allows you to focus your time on other important aspects of your trucking business. Trucking business owners need to focus on dispatching and finding new shippers, not on collecting invoices from last months shipper who is slow to pay.
The cost of invoice factoring
Fees are collected when your shipper pays the balance of your invoice to the factoring company. You get the balance of your funds, minus the factoring fee, after the invoice is paid. Normally the fees can range from 2% to 4% depending on the since of your trucking company.
Remember that factoring companies specialize in invoice creation and collection. They process hundreds, if not thousands, of documents a day. It’s like having your own back office team. The best part is that work is already included in the factoring fee.
When considering working capital solutions, it’s important to look at factoring companies that can grow with you as you expand your trucking business.
Factoring Means Continuous Unlimited Funding
Trucking businesses typically expect payment in 30 days or less. But your shippers can have their own cash flow challenges, and they may not be able to use credit or existing cash reserves to pay carriers and other service providers. This all-too-common reality can quickly stall the potential of a growing business and in some cases cause small trucking companies to go out of business.
In the end, poor cash flow can threaten the credibility and long-term viability of your trucking business. No business owner wants to be known as the person who doesn’t pay their bills or pay their carriers.
Factoring provides both the credibility and efficiency trucking businesses need by speeding up getting paid. Unlike bank lines of credit and traditional bank loans, factoring can easily scale to meet your trucking business’s growth, both in number of shippers and volume.
Access to this working capital through factoring is not affected by your company’s credit worthiness. Factoring looks at your customer’s credit when purchasing an invoice.
Trucking Company's Receiving Credit is Challenging
Trucking businesses of all sizes can find access to cash extremely challenging. And if your business is relatively new, there may not be enough credit history to satisfy the bank’s requirements. This is often true especially with new freight brokerages. Carriers depend on a freight brokerage to have credit, so they know they will get paid.