Reasons Transportation Companies Use Invoice Factoring ServicesOn April 14, 2022 by guWiz16T
The trucking industry is a major part of the United States’ economy. It earns more than $700 billion in revenue annually. Trucking is the primary driver of 71 percent of all freight in the United States and accounts for 6percent of full-time employment. However, as with every other sector is full of particular problems. Continuous cash flow and adequate capital are among the major concerns facing the most transportation companies.
This is where truck factoring or transportation factoring, freight bill factoring, or freight factoring enters the picture.
Understanding Truck Factoring
No matter what you refer to it, truck factoring (also known as freight invoice factoring) operates similarly. Invoice factoring, also known as accounts receivable factors, involves selling uncollected invoices of clients at a reduced price. The element or your funding partner will buy your invoices at a set price. This is revenue for them and is a discount in exchange for accessing instant capital.
Transportation and trucking businesses are vital to many producers and consumers. The transportation industry usually has long periods of waiting to collect invoices. Customers tend to pay invoices in bulk over the whole time. This could be 30-days, 60-days as well as 90 days. But, the bills never cease to come in.
The trucking industry must keep their fleets running in order to pay their employees’ salaries and wages and pay all fixed operational fees promptly. Additionally, there are always costs that come with the turnover of employees. The best drivers are difficult to find and it could be difficult to locate and keep these individuals. Cash flow is an issue for any business in any field.
It is, however, the main concern of most trucking companies, regardless of size or time in the field. Being able to maintain a steady flow of cash is essential in this business. This is possible through invoices or truck factoring. It is essential to realize that transportation factoring is distinct from the loan. It is not a way to take on more liability or debt in the event that you transfer your bills to factor.
You collect outstanding invoices in advance, by paying an amount. It is usually the obligation of the factoring firm to collect. However, in some cases (recourse freight factoring) you are accountable for invoices in the event that any client is in default on their payments.
How Does Truck Factoring Work?
A lot of transportation companies depend on their factor partners as their primary option for times when they require of funds or ready capital to invest in their businesses. While you wait for your customers to make their payment and you have to make travel. It could take several thousand of dollars for one trip across the country, based on the size of your fleet and the kind of consignment that you are transporting.
You must continue the running load to keep your business afloat. However, you’ll require payment for gas. This is the point where truck factoring comes into play. It is possible to sell invoices right now regardless of whether they are due in 60 or even 90 days. When you sign an agreement for truck factoring you are an advance in a lump sum amount. It is typically around 80% of your total invoices. The remainder (minus the fee of the factoring partner) is due when you pay the customer in the full amount.
There is no need to wait for another couple of months or a month for invoices due for payment. You will be paid right now. Most factoring firms for trucks don’t require more than 24 to 72 hours before paying for the advance. This means that you may be able to sign a permanent agreement with your factoring partners to fund a specific amount of invoices per month. In this way, you won’t have to be in a position to run out of money once more.
The factoring company is responsible to collect the invoices. You are free to concentrate on your company and its operations. In addition to the obvious upfront cashflow, there are many other advantages when you use invoice factoring service. These benefits are detailed below.
Benefits of Truck Factoring for Transportation Companies
Ensures Quick Cash
It isn’t easy to meet demand for cash when you’re growing rapidly. Each business has its own challenge, however many of them share a cash-flow issues in common. If you are able to handle more orders that you require, you must purchase additional trucks, workers as well as maintenance things to accommodate the demands. It could be fatal to your company to refuse an account with a significant amount of money simply because you don’t have enough capital. In the end, opportunities aren’t coming knocking every single day
Truck factoring allows you to meet your cash needs. You can inject new capital into your business without taking on more debt. So, you don’t have any new liabilities on your balance statement. There is no need to wait for 30, 60 or 90 days to add additional truck to your inventory, or employ more workers. You can request your factoring service provider to fund the amount you need in exchange for the invoicing that is not paid.
Helps New Businesses
It isn’t easy to begin a new trucking company. You will require a large amount of money to start to build your brand, reputation, fleet and employees. In addition you have to cover operational expenses in addition, like fuel and overheads to transport the load. The biggest problem is that you have to fund this capital after you have received your payment. When you factor in the first invoices, you’ll be able to get enough capital to run your business.
The factoring company will pay part of the amount of the invoice as a fee. Banks aren’t exactly welcoming to startups. You’ll need to provide evidence of your assets as well as your creditworthiness. Additionally, bank processes may take a long time, leaving you high and empty. However, truck factoring is only for creditworthy customers. The advance in up to 24 hours.
No Increase in Debt
There are a few methods to raise money without taking on more debt. Factoring in trucks is among the methods, and that’s why so many transportation companies are now opening their doors to factoring. It is not a way to take on additional loans when you get an advance from a factoring business. Instead you will sell your accounts receivables for an amount.
The accounts close after the factor has received the cash payment from the client and transfers the rest of the sum to the factor. You will be able to access more money fast, without increasing your asset-to- the ratio of debt.
Option to Expand
Invoice factoring provides the required option to expand and expand your company. The majority of trucking companies are unable to increase their revenue due to a shortage of funds. The money they earn is deposited to invoices from clients and instant payment lowest price. They aren’t able to sign on new clients, even if they would like to due to insufficient funds.
By factoring in your invoices, you will be able to free up funds to fund your day-to-day activities and have enough cash to handle more work. It is easy to think about expanding your freight company with the additional capital you receive from your funding partner. A lot of trucking firms purchase new rigs, recruit additional workers and accept more work by factoring in invoices.
Factoring basically helps you get rid of money on your account receivable. It can provide a constant flow of working capital that can be used for the growth of your business. But, it is important to ensure that you work with a well-known and experienced factoring business that is aware of your requirements. So, you’ll always be in a position to access cash. Also, you’ll be able to fulfill new orders for work and grow your company.
Focus on Business Operations
Many truck factoring firms offer assistance with collection reports, monitoring the progress of payments and other crucial back-office duties. This can relieve your staff and other resources so that they can focus on other important operational duties and duties. Furthermore, you don’t have to think about collecting money as the funding partner will take care of it.
The factoring firm will provide the funds you require to expand your business and also pay your invoices while helping you to free up valuable resources. So you can spend more time to acquiring clients and building relationships. Also, you’ll have the security of knowing that your receivables from accounts receivable will not be neglected. The factoring company will issue reminders to pay as needed.
Traditional financing options like bank loans, can be rigid and rigid when it comes to their application. The truck factoring alternative can be flexible to suit your needs and goals. You can factor the number of invoices you want at any time. The amount you are able to raise is only limited by the number of valid invoices you have in the time frame.
There are no limitations on the manner you apply the amount of advance. You do not have to answer to the factoring firm regarding the way you use the money. It can be used to purchase new equipment or invest in a different warehouse or acquire additional business, pay off outstanding debts, or in any other way you find most comfortable for you.