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 own a truck company you must be fully aware that the intensity of cash flow in this business is much higher than most businesses. The list of ongoing expenses like fuel expenses, salaries, truck repairs, rental charges can be overwhelming for anybody. It is a known fact that running a truck company is profitable but the wait for freight bills to get paid after 60 days can be overbearing even for large profitable trucking companies. This situation is more difficult for small and new trucking companies.

In most cases, owners try to get finance from banks in the hope of solving the problem with a line of credits. But this is not easy as the company needs to show a minimum of 3 years of audited finances with regular profits. If that is the case then why would the owner go to a bank for a loan in the first place?

A better solution in such a case is to opt for freight factoring. In freight factoring you are able to convert your slow paying freight bills into easy cash by selling them to a freight factoring firm/company/broker. In this way you are able to get easy finances and handle ongoing expenses for your business. Freight bill factoring is a more flexible way of getting finances as compared to loans.

The process of freight bill factoring for trucking companies is easy. The factoring companies buy your invoices and pays for them upfront. The payment is done in two installments. The first installment, called the advance, of 90-95% of the bill amount is paid when they take over the invoice. The second installment comes when the customer has paid the invoice amount to the factoring company, who then pays the remaining 10% after deducting their fee. This 10% is held up as reserve money in case of charge backs or disputes.

The factoring fee is dependent upon the time taken to clear the invoice and the monthly volume of invoices provided to the factoring company. Discount rate can be from 1.5% to 4%per month depending upon the given parameters.

It is generally seen that factoring companies buy invoices by the non-recourse invoice factoring method. In such cases, it is the factoring company that carries the risk and bears the losses if a client is not able to pay the bills. This comes as an added benefit of factoring and allows you to concentrate on your business to make it grow.

In many cases factoring companies also provide collections and credit protections as part of their services. This saves you from spending more money and time in back office work and provides you with the benefit of concentrating your time and energy and redirecting your money to grow your business.

Freight bill factoring proves to be a boon for the new and emerging trucking companies as they can make their businesses grow without worrying about payments of invoices. Many truck factory owners started factoring their bills to avert dealing with slow or non payers, have with time been able to put away a lot of tension and concentrate in a more focused manner on their business.



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

Account Receivables Collection