Anybody running a trucking company understands the danger of cash flow interruptions. When clients fail to pay on time, critical functions freeze up, bringing fleets to a standstill and reducing overall profit. You can avoid this from happening to your shipping operation through a simple financial instrument known as factoring. Read on to understand how.
Defining Factoring
With factoring, a freight factoring business, also known as a “factor,” buys invoices at a discount. Once this occurs, funds can quickly become available to drivers, including for invoices that remain unpaid. This means that instead of waiting for a customer to provide necessary cash, a delay that can take up to three months, the money will become accessible within less than a day.
Advantages of Factoring
Easily scalable, freight factoring works for trucking enterprises of any size. Filling out a simple application form is all it takes. With financial factoring support, vehicle operators never have to wait for customer payment before heading off with their next load. One example of how factoring companies help make this possible is by pre-qualifying fuel advances.
Note, this is not a loan. Instead, the factoring group gets paid through assuming a percentage of a payload’s invoice. With this arrangement, shippers can relax, knowing impossible-to-repay debt will never be incurred.
Factoring makes life on the road easier in other ways, too. Reputable factors, for instance, keep their clients constantly informed regarding collections and related matters. Paperwork may be handled digitally and mobile apps mean account information is available around the clock. Your provider may even outfit you with helpful advantages like fuel finders, load boards, document storage, reporting tools, and online invoicing. In addition to being convenient, these added benefits also help save money.
Recourse Versus Non-Recourse Factoring
Be aware that factoring offers two types of deals. With recourse factoring, it’s still possible for companies to remain responsible for payments when shippers fall through. In non-recourse factoring, a greater level of risk is assumed by the factoring company, which additionally means they cost more. Whichever style of the agreement you choose, examine the details within your contract before signing and avoid unpleasant surprises by knowing in advance how varying situations are handled.
Trucking ventures only earn money when drivers are on the road and lack of cash flow can suddenly halt otherwise active hauling operations. Factoring companies specializing in the long-haul industry are designed specifically to alleviate this potential roadblock, keeping drivers on the freeway, and maximizing earnings.