Cash flow can be very slugging in a trucking business, especially with the long payment cycles. Delivering your goods early and on time doesn’t mean you get paid the same week. The norm is to wait for at least 30 days, sometimes 90, to receive payment.
Your business expansion slows down since you’re not getting paid faster. You might even have to continuously shell out money to accommodate emergency truck repairs or to pay for gas for long trips.
Freight invoice factoring is a way to circumvent this shortcoming in this business.
You get paid faster so you have better cash flow. You won’t have to continuously borrow money to keep your business running. And if you’re wading in the shallows, freight invoice factoring can get you out of the sea of debt.
But before you go straight to the nearest trucking factoring companies, you should know more about this financial approach.
Read on and learn more about freight factoring services and how they work. Your due diligence will help you decide which factoring financing is best for your business.
What is Freight Invoice Factoring?
Freight invoice factoring is about getting paid faster. You sell your invoices to a factoring company, and you receive payments weeks before your customer’s due date.
Wall Street Journal defines the process in a nutshell: “The factor advances most of the invoice amount—usually 70% to 90%—after checking out the credit-worthiness of the billed customer.” You get paid with the remaining 10%, less the factoring fees after your customer pays for the bill.
Receiving up to 90% of the payment ahead of time allows you to use the money for growing your business.
You won’t have to wait until the end of the payment cycle before funding your new truck or hiring a new driver. You can even save it as an emergency fund in case you suddenly need truck repairs.
With more and more freight companies going online these days, sluggish development can hamper your business progress. You might even get left behind by the competition. However, receiving payments earlier will help you to fund the development of your new website or app. You won’t have to borrow money and put yourself in debt.
Types of Factoring to Consider
There are two types of invoice factoring you need to be aware of immediately. Knowing their differences helps you choose the factoring program that suits your needs:
Offered by all freight factoring companies, this type of factoring incurs lower fees. However, you’ll be held liable in case your customer doesn’t pay up. This is a good choice if you have no delinquent customers. You’ll be able to get up to 90% of the payment upfront. You’ll also have lower fees deducted on the remaining 10% when the freight invoice factoring company gives it to you later.
Top transportation factoring companies offer this type of factoring. If you’re approved with non-recourse factoring, you’re no longer liable when your customers don’t pay up. Since it removes the risk of non-paying customers, the factoring company charges you with higher fees. Choose this type of factoring if you have delinquent customers on your list.
How Does Freight Invoice Factoring Work?
Here’s what you should expect if you decide to go with freight invoice factoring:
- Perform your company’s task by delivering the load and getting your paperwork signed.
- Submit the invoice together with rate confirmation and bill of lading. They will verify that delivery has indeed been done and that there are no freight claims.
- Once all verification is done, you’ll receive up to 90% of the payment (depending on your agreement with the trucking factoring company). You can also choose to apply it to a fuel card so you won’t have to worry about this part of your business operation anymore.
- Get paid with the remaining 10% less the factoring fees when your customer pays up.
The faster cash flow you receive will free you from the burden of having to manage your invoices on top of operating your business.
Lighten Up Your Stressful Load with Freight Invoice Factoring
With this information you’ve learned, you’ll be more confident entering a beneficial agreement with a transportation factoring company. Choose a type of factoring that matches the way your customers pay up and allow yourself to focus more on growing your business.