Freight factoring companies not only convert invoices to cash. They also help trucking businesses have a streamlined and more predictable financial standing. Overall, it’s a win-win situation for the trucking company and the factor who earns a fee from their service.
In this post, we will discuss how factoring freight invoices can make a difference in a trucking business and how it can be a key to unlocking your financial stability.
What is freight factoring?
Freight factoring is also known as truck factoring or factoring for trucking. This service involves trucking businesses selling their accounts receivable to a third-party factoring company at a discounted rate.
Upon receipt, the freight factoring company will then verify the accuracy of the invoice. At the same time, the factor will also conduct a credit check on your customers to see if they are at a high risk of non-payment.
On that note, the factoring company may decline to fund the invoice. Still, some may offer other options like recourse factoring, where the trucking company will pay back the factored invoice in case their clients don’t pay the accounts receivable.
Overall, once your factored invoice is verified, the freight factoring service will fund it within the same day. This means trucking companies no longer have to wait for 30, 60, or even 90 days for client payments.
For truckers, this means less time spent chasing payments, fewer administrative tasks, and more drive time.
Financial benefits of freight factoring services
Factoring companies for freight brings in a lot of financial advantages, including the following:
1. Improved cash flow
The trucking industry often faces long payment delays, which can put a strain on their finances. In some cases, owners have to shell out their own funds to keep their fleets afloat, especially on slow months.
2. Reduced bad debts
Instead of entering into another debt to cover operational costs, trucking companies can now partner with a factoring service instead.
Unlike loans that take weeks to get approved, factors can fund invoices within 24 hours. This means truckers will instantly access the capital they need to cover various expenses, including fuel costs, maintenance, and driver salaries.
3. Avoiding non-paying clients
Another benefit of working with factoring companies is that they can perform credit checks on your prospective clients. This way, you’ll know if a potential customer is a good payer before you accept their haul.
Once you decide to factor the invoice from that client, the factoring company will approve it faster. It will also save you from possible hiccups of dealing with non-paying shippers or brokers.
4. Flexible financing
Factoring services also help streamline your finances by giving you the flexibility to choose which invoices you want to factor. For example, you can sell accounts receivables from the longest-paying clients and keep fast-paying ones in your in-house collections.
Aside from that, a factoring company for freight doesn’t usually impose long-term contracts. You can choose to avail of their service only when needed.
5. Improved supplier relationships
Thanks to the immediate cash flow factoring companies provide, trucking businesses can pay their suppliers on time. Whether it’s the supplier for replacement parts, maintenance, equipment, and whatnot, a reliable cash flow is key in ensuring a long-term partnership.
6. Better payment terms for customers
Since you can convert your pending invoices to cash, you can give your customers better payment terms. Still, you should work with your factoring company to ensure that everyone will benefit from the payment setup.
In the long run, this flexibility will also help you build stronger customer relationships. This can also help you secure repeat clients, thanks to the convenience and leeway you can offer.
7. Improved creditworthiness
Factoring also allows trucking businesses to preserve their credit lines for better use. For example, instead of getting a loan for basic expenses, you can sell your pending invoices for instant funding.
In this case, trucking companies can dedicate their credit lines to growing their business. This includes acquiring new trucks, opening new headquarters, and so on.
8. Access to experts
Aside from accessing instant funds, trucking companies can also access the help of financial experts.
Some factoring companies also offer accounting services, which can help lighten the administrative load of busy truckers.
So, instead of sitting in their offices doing paperwork, they can hand it to experts while they enjoy more road hours.
Long payment cycles are a common challenge in the trucking industry. The good thing is that factoring services made this dilemma more bearable by offering to purchase accounts receivables from trucking businesses.
So, while factors earn a fee from their service, truckers get the amount tied to their invoices. It’s a big win for both parties, which can be a good long-term partnership.
Just make sure that you’re partnering with a reliable and trusted factoring company to ensure a seamless cash flow.