Freight companies are no strangers to cash flow problems. Late payments, long invoice periods, and high fuel costs all contribute to potential cash issues for transportation and trucking businesses. Depending on the size of the costs, some of these situations can even cause a freight company to fail. Instead of worrying about your month-to-month cash flow, you can take advantage of transportation factoring to help your company build up its cash reserves. Here are a few ways that transportation factoring can help your freight company.
What is Transportation Factoring?
First of all, what is transportation factoring? To put it simply, this type of factoring allows freight companies to sell the value of their customer invoices to a third-party factor that advances them most of the invoice amount up front. After that, the factoring agreement works in a manner similar to a short-term loan, closing once the customer pays the invoice in full. In return for advancing the majority of the invoice value, the factor gets to deduct a small fee for its services and then remits the remainder of the payment back to the freight company.
Benefits of Using Transportation Factoring
What makes transportation factoring such an attractive funding plan? For one thing, business owners can use this option to avoid worrying about late customer payments or long invoice windows. In most cases, freight companies have to wait up to 90 days to get paid for their services. With transportation factoring, though, companies can get their money in as little as a few business days.
Using transportation factoring also helps a freight company owner avoid the common credit concerns that go along with pursuing a traditional bank loan. Since factoring is based on the creditworthiness of the company's customers rather than the business owner, an entrepreneur can apply for factoring even if his or her credit is less than satisfactory.
Yet another benefit of transportation factoring is its flexible access to cash. Credit lines usually carry a hard limit and applicants may find it hard to get these limits raised in lean economic times. Factoring, though, has a built-in flexibility, since it is based on the amount of invoices that are issued each month.
Do you own a freight company? Are you in need of a flexible funding source that won't require a credit check? If so, transportation factoring can help your freight company to meet expenses and increase cash flow when you need it most.