Freight companies have substantial funding obstacles to overcome. The transportation field is crowded with competitors making it hard for new companies to establish themselves and begin turning a profit quickly. Most freight companies also operate on very thin profit margins which can cause trouble when the business needs to expand or purchase new equipment. Learning various ways of funding a transportation company is essential to developing a new freight business.
Potential Cash Issues
Simple issues such as a client paying an invoice late, a driver who requests a fast payment, the high cost of gasoline or the sudden breakdown of company equipment can put a company in the red. Since there are so many variables in the freight industry keeping a stream of steady funding open is very important.
Managing Accounts Receivables
A great way to stay on top of funding problems is to manage your accounts receivables well. Before you agree to work with a shipper check the company's credit history to see if there are any previous payment issues you should know about. Keep up with the necessary paperwork such as freight bills and bills of lading to avoid fines. Offering invoice discounts for customers who pay early is another way to increase your cash flow.
Freight Bill Factoring
While the above suggestions can help you will also need a reliable form of financing for major purchases. Commercial loans are very hard to get for freight businesses since banks and traditional lenders require excellent credit history and several years of profitability before they'll grant a loan. However, freight bill factoring allows you to use your invoices as collateral to get access to your future payments right now.
Invoice factoring works by providing two advances against your future invoices. The initial advance grants you 90 percent of your outstanding invoices in cash. The second advance will include the remaining 10 percent minus the factoring company's fee. One of the biggest incentives for freight bill factoring is that you won't have to collect on your invoices. The factoring company assumes responsibility for collecting those payments so you don't have to worry about repaying the advance.
Qualifying for Factoring
You don't need good business credit to get freight bill factoring but you do need a reliable client record. Since the shippers pay for your invoices they must have a good payment record in order for you to qualify for factoring. You also need to make sure you don't have any tax or legal issues that could interfere with getting approved for your advance.
Funding a transportation company can be difficult, but there are options open to freight business owners. By using freight bill factoring companies can get access to the cash they need to grow their businesses.