Trucking and logistics are good businesses to be in, but at the same time they are very cash intensive. Trucking and logistic companies have to deal with ever rising fuel prices, driver payments, repairs, tire purchases and other operational expenses. These expenses are a constant drain on the finances of these companies and are unavoidable. Most customers of trucking and logistic companies do not pay before 30 days of raising the freight bill. In fact, most of them pay after 30 to 60 days of raising the freight bill. This is a challenge faced by all the small and medium trucking and logistics companies in North America. Unless the trucking and logistics companies are cash rich with deep pockets, they are likely to run into financial problems sooner or later.

Most company owners try and obtain finance from their bankers to tide over this cash flow problem. However banks very rarely provide finance to small trucking and logistics companies. Moreover a business loan is not the solution to this problem. Fortunately, there exists a solution available for such companies that they can use to overcome this problem. This solution is called freight bill factoring! Factoring can provide logistics and transportation companies with finance that helps them meet their recurring expenses and help them grow.

Obtaining a loan from the bank is difficult and a cumbersome procedure. Freight bill factoring is easy and a factoring line can be set up in a matter of days. Factoring is making advance available on slow paying freight bills. Factoring enables the transportation and logistics companies to meet their expenses while waiting for their bills to be paid by their customers.

Factoring works in a very simple way. When a trucking company delivers the goods to the customer, it raises a freight bill. The factoring company buys the freight bill and pays the transporter 90 to 95 percent of the freight bill. This advance can be used by the company to meet its expenses and pay its suppliers. Once the trucking company’s customer pays the factoring company the full freight bill amount, the balance payment due to the trucking company is paid by the factoring company after deducting a small fee.

The cost of factoring varies from company to company. It could be anywhere from 1% to 3.5% per month. The cost of the factoring depends on a number of factors like the industry the trucking company deals with, the credit worthiness of the trucking company’s client, and the credit period extended to the customers.

Freight factoring is in fact an extension of the trucking company’s business. It offers an easy alternative to bank loans. The trucking company does not have to give any collateral security and interest. Freight factoring is flexible as the advances increase, as more freight bills are submitted and factoring fee gets reduced once the turnover increases.

Freight factoring provides instant finance to transportation and logistics companies, thereby creating a cash flow for their smooth operations. Freight factoring companies enable small and medium companies to focus on their core activity and grow rapidly.



Thanks to Kris Koonar for contributing this article to our Factoring blog:

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For your business to succeed even with a lot of credit clients, you will require a steady inflow of cash at regular intervals in order to meet your daily expenses and fund your expansion plans. This will especially be tough if you are a start-up business or if you are yet to break even in your business.

Most businesses would initially try and arrange a bank loan to tide over the cash-flow problem. But banks have rigid rules that require to be met. They also need sufficient collateral to safeguard their end in case you fail to pay back the loan. Your audited financial statements will also have to be submitted and if you are a start-up company or if you have not yet started registering profits, then you might as well kiss that loan goodbye. If you do manage to lay your hands on the loan, your joy could be short-lived since you will need to repay the loan along with interest in the form of monthly installments.

Another method of arranging finance is by tying up with a business factoring company. This method provides flexible financing since it does not require any collateral or repayment through installments. In this mode of financing, a business factoring company will ‘buy’ off your credit invoice from you. They will then proceed to wire you the invoice amount minus their factoring fee, which could be 1.5% to 5% of the invoice value. This percentage would depend on the credit period that you have extended to your clients, the credibility of your client as decided by the factoring company and the total value of business that you can provide to your factoring company. This essentially means that you get immediate cash even against your credit invoices.

This could right away improve your cash flow and could help you to meet your business expenses comfortably. You could pay your suppliers and employees on time, take on larger projects and even go in for bulk purchases in order to get a higher discount on your purchases. You could also expand your business without any financial restraints. Your reputation in your market might also get enhanced if you pay your suppliers on time. You would also have a choice in deciding the method of factoring. If you decide to go in for recourse factoring, then the responsibility of collecting the payment would lie with you.

However, if you decide to use the non-recourse arrangement with the factoring company, then the factoring company would assume the responsibility of collecting the payment from your clients. This feature could be very useful in freeing up your collection staff and they could then be diverted towards other duties. Thus, business factoring could not only provide you with instant cash against credit sales but could also free you from the burden of running after your clients for your payments. Since business factoring provides finance against your pending invoices, this process has the potential to grow along with your business.

Therefore, business factoring can prove to be a boon for your business since it provides you with ready cash when you need it the most, and that too without the hassles of lengthy repayment schedules. By utilizing the money sensibly, you can surely factor your way to success with business factoring.



Thanks to Kris Koonar for contributing this article to our Factoring blog:

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