If you are running a small to medium freight company, then you must be losing sleep, worrying about getting cash on time to meet your expenses and getting your payments from customers on time. This is where freight factoring can help your business go from slow to quick growth.

When you haul freight for your customer or freight broker, you would be issuing a freight invoice. You would then wait for 30 to 90 days depending on the credit given to your customer, for your payment to arrive. Freight factoring companies will “buy” this freight invoice off you and give you the invoice amount immediately. This payment will be in 2 installments. The first installment will be transferred to your account in 2 to 4 days and could be upto 90% of the invoice value. The 2nd installment will be the balance amount and will be transferred to your account after your customer makes the payment on the due date, minus the ‘factoring fees’.

This means that you get your money almost immediately after making the invoice and this ensures that you can meet your expenses with ready cash. This will enable you to pay off your fuel bills and salaries on time and also enable you to take on new and bigger hauls, thereby increasing your business. This will mean increased credit freight invoices and consequently more business for your freight factoring company, and again more cash payments for you. A winning combination indeed, but you should be careful about some points, while hiring the services of a freight factoring company.

The ‘factoring fees’ could be from 1.5% to 5% of the total invoice amount, depending upon various factors such as the credit period of the invoice, the credit rating of your customer as decided by the factoring company and the total volume of business, you give to the factoring company. So, if you are giving more than 30 days credit to a customer, who is rated low on the factoring company’s credit rating list, then the fees will be the highest.

That could reduce your profit margin substantially. The freight factoring company should also be able to handle your account efficiently and since they could also be taking over your payment collection from you, they would have to behave courteously with your customers or they could end up damaging your reputation and relation with your customer. Your customers will also have to be informed about your tie-up with the freight factoring company and some of them might not be very comfortable in dealing with third parties.

These problems could crop up, once you hire the freight factoring company. But, if you keep an eagle eye on their operations, you could quickly diffuse any tricky situation without ruffling too many feathers. Some factoring companies also offer ‘non-recourse’ factoring, whereby any customer defaulting on his payment will be the factoring company’s problem and not yours. This will help you in concentrating more on increasing your hauling business, rather than losing sleep over bad debts. However, any additional service including this one from the factoring company will cost you more. You will have to decide finally, on which services you would require from them and which you don’t.

So, freight factoring can be a boon for your budding freight business, but you should also understand the risks and charges associated with it.



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

Instant Working Capital

Transportation is a very cash-flow-intensive business. The operational costs of running this business are huge. Small and medium size trucking companies find it difficult to manage the ever-increasing fuel bills, driver payments, and breakdown/repairs, lease rentals, tire purchases and salaries. However, most trucking companies are profitable, very few new and medium trucking companies can afford the waiting period of 30 to 60 days to get paid. Unless the trucking company is cash rich with deep pockets, this is an abnormally long waiting period which can affect the smooth functioning of its operations.

Both freight brokers and carriers face the problem of balancing slow paying customers and managing day to day expenses. It is quiet common for trucking companies to get paid in 30 to 60 days. Although older trucking companies have enough reserves, it’s the new, smaller and growing companies who find this a challenging to manage. Traditional businesses can ask for quick payments from their clients. However, this does not work with trucking companies, as clients of trucking companies have an upper hand and negotiate for a longer credit period. Availing a business loan is the only option left for the trucking company.

Fortunately there is a tool trucking companies can use to get out of this rut and benefit from a steady cash flow. This tool is called Freight Bill Factoring. Freight bill factoring enables the trucking company to realize their freight bills within a day or two of invoicing thus eliminating the 30 to 60 day waiting period. Once the trucking company puts a factoring agreement in place, it stabilizes the company’s cash flow and enables the trucking company to concentrate all its energies on running the transportation business. With this stress eliminated, trucking companies can focus on growth.

Freight bill factoring enables the trucking company to realize as much as 90 to 97 percent of the freight bill from the factoring company, the balance 10% is paid to the trucking company once the factoring company collects the full amount from the clients. Factoring is advantageous when compared to conventional financing. Factoring is very easy if you meet certain conditions. The first requirement is that trucking companies deal with credit worthy and reputable clients. Factoring can be set up in a matter of days; in fact some factoring companies promise to set up factoring lines in as little as two working days. Freight factoring is very flexible and is directly related to your sales. If your sales increase, so does your finance.

Factoring costs vary from company to company and are based on certain parameters. Usually factoring companies charge 1.5% to 3% per month, depending on the volume and the duration. Factoring companies also insist on the trucking company being free of tax issues. Factoring companies encourage trucking companies to deal with reputable freight brokers and customers. These are the two main conditions that trucking companies have to meet before accessing finance. Factoring companies do not hesitate to work with new trucking companies if they qualify. New trucking companies can get a factoring line within a few days of approaching a factoring company.



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

Business Capital Financing

If you run your own trucking business, then you might be painfully aware of the fact that a lot of cash is required on a daily basis to pay fuel bills, drivers’ salaries, routine maintenance and repair bills and your other employees’ salaries. Since most of your clients could be paying you after a period of 30 days, meeting these routine expenses could pose a serious challenge to the growth and survival of your trucking company.

In such a case, you might wish for money in your hand, whenever you need to pay for your routine and even unexpected expenses, such as sudden repair bills or tire replacement bills. You could apply for a bank loan, in order to take care of such expenses. But, if you have just entered the trucking business, then banks would impose restrictions in the form of collateral or guarantors, in order to secure themselves against a bad loan. You might also need to provide your audited financial statements for the previous 3 years showing your profit figures, which would not be possible, if you were new to this line. You would have to repay the loan along with interest in the form of regular monthly installments for a fixed time, failing which the bank could take possession of the collateral offered by you, while availing the loan.

This unique need has created a financial tool known as freight factoring. Freight factoring companies offer you immediate cash against your credit invoices after deducting a factoring fee. They purchase your credit invoice and wire you the invoice amount after deducting a factoring fee of around 1.5% to 5%. This fee will be based upon the business that you generate for your factoring company, the number of days that you have extended to your credit clients and the credit rating in the eyes of your factoring company.

The factoring company might also retain another 5% to 10% of the invoice amount as security, although this would depend on the arrangement that you have with your factoring company. This means that instead of a fixed amount, you can get varied amounts at regular intervals depending on the amount of invoices that you have factored with the company. Thus, as your business grows, you might submit larger invoices to the factoring company, which in turn will provide fatter funds for your business.

Freight factoring will first and foremost help your trucking company by providing instant money without going through the hassles of providing collateral or audited documents. This money will immediately improve your cash flow and enable you to clear your daily bills such as fuel bills, drivers’ and other employees’ salaries, truck servicing and other repair bills, etc. Freight factoring will also enable you to take on new hauls, which previously would have seemed impossible due to shortage of funds. Freight factoring companies can also take over your receivables by collecting your payments from your clients on the due date, albeit at an additional fee. This too will enable you to divert your energy towards increasing sales rather than running after erring clients.

Thus, freight factoring can walk hand-in-hand with your trucking business and the money that is provided by such companies can help you to meet your expenses, take on new clients and larger hauls and even plan an expansion. Flexibility is the key in freight factoring and once you avail the services of the right factoring company, your trucking business might easily reach from point ‘A’ to point ‘B’ without any hiccups.



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

Business Capital Financing