If you manage or own a trucking business, then you must be aware that some of the hardest challenges you experience involve managing fuel costs, truck maintenance, and finding professional and experienced drivers.
For you to find a solution to these challenges each time they come up, you require a steady cash flow. Without it, you’ll find it a bit hard paying your drivers’ salaries on time, office rent, buy new trucks, or service the ones you already have.
The situation can get even more complex when you have to wait for weeks, or even months for your client to pay up, leaving you with a limited amount of money to get things going. Ultimately, this will affect your productivity and your ability to deliver clients’ goods on time. You could also lose talented drivers if they’re left frustrated by an inconsistent payroll.
All these factors considered, it’s clear that having a reliable cash flow is critical for your freight business to survive. So how do you counter such a situation?
You could get a loan from the bank but months may go by before you fill all the bank paperwork and the bank processes your loan request if at all they will acquiesce to it.
Well, one of the most efficient methods of getting cash flow and in good time is through freight factoring. In a nutshell, freight factoring is an alternate form of business financing that allows you as the business owner to receive immediate cash advances on your invoices.
This gives trucking companies the capital they require to keep their business running instead of having to wait for weeks or even months to get paid after making a successful delivery.
Here’s a comprehensive breakdown of 5 other benefits you can expect from freight factoring as a trucking business owner.
1. It’s a Simple and Easy Process
Compared to long-term financing solutions and traditional loans, freight factoring is a simple and painless process that will have your money in your accounts in a matter of days and only takes you a few minutes to apply.
All you have to do is submit your business information to a freight factoring company that will look at your client’s credit report and do invoice checks and you should expect to get paid upon successful application.
The usual turnaround time is around 24 to 48 hours depending on the amount of the advance and your factoring company of choice. At best, it can be as little as 1 hour.
Bank loans are often more difficult to get especially if your credit status is not the best or if you just got started with the business. They involve thorough background checks on your financials, approvals from various departments, and many other factors that might hinder you from getting the money.
But with freight factoring, you’re almost assured of your money in quick time since your client will be the one paying the factoring provider and not you. Additionally, your financing is not based on your company’s net value or its credit status, but on your sales instead.
Breaking Down the Process of Registering With a Factoring Company
First, you’ll get in touch with a representative from a factoring services provider. The representative will provide you with information and guidance on what factoring service suits your freight business the most.
After you’ve found the right package, you will proceed to fill out an application form. This should take about 15 minutes of your time, unlike a bank application which can take longer.
Another upside that eases the process, the factoring company will simply look at the financial relationship with your client, rather than your business FICO score. The key to getting approval lies in the client’s good financial standing. As such, you need to provide your most recent invoices form your most reliable clients.
After your business information has been processed and your application approved, you will work with the representative to determine the best way for you to get your money. Most clients usually prefer direct deposit.
2. Quick Cash Payment
A lot of trucking companies are not interested in working with clients who tend to delay their payments. Such clients hold up the cash flow of a business which can really serve as a barrier to its growth.
A trucking business will not be able to keep its trucks on the road for too long, causing them to lose a lot of potential business. Any trucking company owner will tell you each day they have a truck idle, they lose thousands of dollars. But with freight factoring, trucking businesses won’t turn down their potential clients.
Most clients tend to pay between 45 and 60 days while others even pay 30 days. You’ll find that in between your day-to-day business operations, you may not have that amount of time. For example, you might have a broken-down truck that needs instant capital.
The good thing is there are many freight factoring companies that accept 60 and 90-day invoices which means trucking companies won’t have to wait for months to get their hard-earned money.
Whereas traditional lending options could serve as a decent solution to your financial trouble, with freight factoring, you’ll receive your advance in a matter of hours so you can pay for your urgent expenses.
3. Helps Truck Companies Avoid Debt
One significant benefit from freight factoring that doesn’t get enough credit, so to speak, is the protection it offers against bad debts. Bad debt happens when a client owes you money but is not looking likely to pay. That’s where a form of factoring known as non-recourse factoring comes in.
There are two types of factoring; recourse and non-recourse factoring. Recourse factoring involves the invoice seller assuming the risk of a business defaulting on the invoice.
Non-recourse factoring, on the other hand, involves the trucker’s responsibilities coming to an end the moment the cash trade for the invoice has been made regardless of if the freight invoice will be paid or not.
Since the factoring company will assume all responsibility for collecting the invoice, they have to take due diligence to ensure the business on the invoice has a fair credit standing. For trucking companies, this means they won’t face the risk of bad debts.
You also have to consider the fact that since freight factoring isn’t a loan but an advance, it’s your money you’re getting that you won’t have to pay back unlike a loan. Therefore, you won’t have a lender weighing down on you consistently as you try and focus on your business.
4. Are a Reliable Source of Cash for Small and New Businesses
It is often vital for small and new businesses to have cash upfront to pay for expenses that will enable them to deliver their clients’ packages. The truth is new trucking businesses tend to have a difficult time securing a bank loan since they haven’t yet established favourable credit history.
Truck factoring helps these kinds of businesses avoid bank loans as well as failure to fulfil client orders by paying their invoices in advance. In fact, experienced trucking companies in the industry recommend that new trucking companies register with a factoring company as soon as possible.
This way, they’ll be all ready to go in case they need immediate factoring services and can proceed to expand their business share.
5. Some Freight Factoring Companies Provide Additional Services
A lot of freight factoring companies understand that trucking companies have many reasons for wanting immediate cash and for these reasons, provide custom-tailored advances for various challenges.
Naturally, one of the difficulties trucking companies struggle with is fuel. In certain scenarios, trucking company owners find it hard filing a truck before they can transport a load. As a solution, freight factoring companies provide fuel cards and advances to trucking companies which allows them to full their rigs while also saving money at the pump.
It’s worth pointing out that some factoring companies usually have that option free with the contract.
Another service factoring companies provide is tracking invoices. Invoicing clients and following up on collections for completed work can be a real hassle. But you can save yourself that stress or from adding extra staff to your payroll whose work will be to manage your accounts payable.
This means you will have more time to focus on growing your business.
The Bottom Line
Every business has its highs and lows so it’s absolutely fundamental that business owners are prepared with the right financing solution for when they need urgent capital.
Factoring companies are a great solution for truck owners since they provide an immediate cash flow even if you have bad or no credit history. Factoring companies also get rid of the stress associated with invoice collections, giving truck owners the time and peace of mind they need to grow their operations.
While choosing a freight factoring company, experience, exceptional customer service, and transparency are a few things truck owners should consider if they want to become even more successful in the industry.