Successful business owners have financed their companies with factoring for decades. Factoring has helped trucking and transportation companies weather the ups and downs in cash flow and provided lines of credit without the credit checks associated with traditional bank loans.
If you are thinking about factoring invoices, here are five excellent reasons to start.
1. Immediate Cash Flow
Factoring is a financing method. You submit your invoices, bills of lading, and rate confirmation to a factoring company. The company verifies your load and credit checks the customer on the invoice. If the invoice qualifies, the factor advances you a portion of the face value of the invoice. It takes on collection duties for the invoice.
Once the customer pays the invoice, the factor sends you the balance minus a small factoring fee.
You can receive up to 97% of the face value of an invoice within a day or two, if not sooner. That's cash in your pocket now instead of 30, 60, or 90 days from now.
Cash flow problems persist for many trucking companies, especially smaller businesses or owner-operators, which have little to no reserve to get them over the hump each month. Invoices are paid in the future, and you need to pay essential bills now, like:
- Repairs and replacement
That gap between invoice and payment can seem insurmountable with an unstable cash flow. With factoring, cash flow evens out so you can plan ahead more easily. You can take on more loads when you know you can finance fuel and truck maintenance.
With a reliable cash flow, you can take advantage of deals when you want instead of waiting until you can afford them. It's also easier to make payroll on time, improving your reputation as an employer and retaining talent.
Besides immediate cash, factors may offer other products and services useful for your trucking business, such as tire discounts, fuel cards, or lines of credit.
2. Access to Affordable Financing if You Have Bad Credit
If you are financing your trucking company with bank loans or credit cards, it’s easy to get into default territory when times are lean. Then your credit score suffers, and obtaining financing becomes more costly and difficult.
Factoring companies aren’t interested in your credit score. They manage risk by only factoring invoices from your customers with good credit. Because they can mitigate risk, they can afford to offer you flexible contract terms for factoring, like:
- No minimum volume
- No long-term contract
- Submit only the invoices you want to factor
Traditional loans and lines of credit charge interest on unpaid balances, increasing what you owe every month. A poor credit rating keeps you from obtaining favorable interest rates and terms. Factors don’t charge interest, just a small fee for factoring services.
3. No Credit Check for You, Just Your Customers
As we said before, your credit score doesn't count. Factors credit check your customers and only qualify invoices from those with a reliable payment history. If your shipper or broker has good commercial credit, factors approve service easily.
Those credit checks can even work to your benefit. The factor might have a list of prequalified customers from which you can select, or you can ask the factor to credit check a specific customer ahead of time so you know whether to deal with them.
4. No Debt to Repay
Factoring is not the same as a loan. It is a cash advance against the face value of your invoices, which is money that you would receive anyway. As such, it does not show up on your books as debt like a loan does.
Factors credit check your customers to reduce the risk of default or nonpayment. Because they perform this service, it is highly unlikely that you will be required to return the advance or buy back an invoice.
5. Save Yourself Time and Resources
A factoring company performs back-office administrative duties for you. When a factor purchases an invoice, it takes on the responsibility of collecting it. You don't need to chase after payment or process the invoice yourself. You simply submit it to the factor and let it do the rest.
Collection activities can strain any business. It requires you to expend the time and effort yourself to follow up on invoice payments, which you can’t do when you’re on the road. The alternative is to hire someone to do it for you, but that means more employees on the payroll for you to manage.
Applying to a factoring company is easy and doesn't cost you anything but a few minutes of your time. Most factors allow you to apply for service online. You answer some simple questions and provide the required documentation. Once the factor approves you for service, you can negotiate a contract that works for you.
Once you are approved for factoring, you have access to credit checks on your customers. You can turn the responsibility for chasing after payment to someone else. When you receive cash at the time you invoice, you eliminate the gaps in your cash flow. You can stop worrying about recurring bills and payroll and start planning for expansion.
Those are five excellent reasons to factor your freight bills. You save yourself time and resources, have immediate access to cash, and can take advantage of deals as they appear. You can take on more loads without worrying about maintenance, fuel, or repairs. You can even get a down payment on additional equipment through the factor.
Why wait any longer? Don't finance your trucking company with a credit card or bank loan. Factor your invoices and grow your trucking business with Factor Funding.