How can a company owner decide if freight factoring is right for his or her business? The key is finding out what the process involves ahead of time. Factoring is not a loan, rather, it's a cash advance based on the value of existing customer invoices. When a factoring application is approved, the factoring company issues cash payment of up to 85 percent of the invoice value. After the customer pays off the invoice, the factoring company takes the remaining percentage, subtracts its fee, and remits the rest to the business.
While business owners don't need to pass a credit check, they do need to have creditworthy customers to qualify for the arrangement. This is because factoring companies extend the cash advance based on the likelihood that a customer will pay his or her invoice on time.
Freight Factoring Reminders
There are a few things for business owners to keep in mind when they're considering applying for freight factoring. One of the most important things is to check the reputation and background of any prospective factoring company before deciding to enlist their services. The factoring fees and rates vary widely depending on the company, so it's wise for a company owner to compare prices and contract terms before he or she completes an application.
Another item to remember when considering freight factoring is to decide whether or not to enter into a long-term factoring contract. A good rule of thumb is to always begin with a short-term contract and then decide whether to consider the business relationship. This way, a company owner has time to evaluate the factor's services without becoming bound to an extended contract term.
While freight and trucking companies commonly face cash flow issues, they can also ease some of their financial strains by taking advantage of freight factoring. With these tips about how to use freight factoring, freight company owners can make sure their businesses remain successful during tough economic times.