Sustainability is key in the trucking industry which means that maintaining a solid cash flow is critical to achieving growth and staying in the black. The unfortunate reality of the trucking industry is that many companies have to wait 30, 60, or even 90 days before they receive payment on outstanding invoices. Without working cash on hand, many companies therefore miss out on opportunities to grow and expand, and some even manage to fall behind on major expenses. This should come as no surprise since the trucking industry is invoice-dependent and many customers don’t pay for weeks or months.
When trucking companies don’t have adequate cash on hand, they lose the ability to grow their operations and even to meet current business demands, such as fleet management, equipment upgrades and maintenance, worker benefits and wages, and fuel expenses. These hurdles in the industry explain why many trucking companies turn to freight bill factoring in order to meet the rising costs of day-to-day operations. Considering the fact that many traditional lenders consider the trucking industry to be fickle (and therefore are hesitant to lend to trucking companies), freight bill factoring has become a popular alternative — a mainstream financial strategy used by many US trucking companies to help give them access to working capital when they need it.
There are many benefits when it comes to factoring invoices to secure funding. Factoring keeps your cash flow liquid, but the benefits also include a much higher approval rating than traditional bank loans, extremely competitive rates, a simpler application process, and much faster funding overall.
Transportation factoring involves three key parties: the trucking company that originally issued the invoice, the customer that owes payment on the outstanding invoice, and the third-party factoring company who purchases those invoices at a discount, offering payment upfront and collecting on the invoice from the original customer on behalf of the carrier.
Here’s a rundown of the process. You enter into an agreement with the factoring company, and then perform your deliveries for your customers. You then send a copy of that invoice to your factoring company, which they then purchase at a discount. They advance you up to 97% of the value of the invoice (less a small percentage held in reserve and a nominal factoring fee that differs from plan to plan) and then they collect the invoice from your customer on your behalf. Once they have collected on the invoice, they will return the reserve funds to you.
When you are looking for a third-party factoring company, you’ll want to look for someone with whom you are comfortable working in the long term. This is because invoice factoring is no longer simply an emergency protocol, but rather an ongoing financial strategy. At a reliable freight factoring company there are a number of plans available depending on the size and scope of your business. Accutrac Capital, for example, offers flat fee factoring — a simple to manage option that can be secured for as low as 1.59%, while a factoring line of credit is a better choice for large fleets with many invoices on hand to factor.
Factoring your transportation bills allows you to secure funding for invoices often on the same day. Turning past-due invoices into an actual resource can be a game changer for small to medium-sized trucking companies in the US. It might be time to ask yourself if your trucking company can benefit from the added security and liquidity that comes with factoring.