Transportation Company owners have to face a typical situation in dealing with clients who pay the freight bills in 30 to 60 days. They have daily cash expenses to take care of. They have to pay the driver’s wages, fuel bills, and vehicle and tire repair expenses. The expenses have to be met urgently while the clients would delay paying the amount for many days. This puts them into a tricky situation with regard the cash flow for their needs. Unless the company has cash in the bank, they cannot afford to wait to be paid.
The owners try to sort this out by arranging for a loan from the bank. But the banks usually do not finance businesses that have less than three years of profit and financial statements to show. So what other option does a freight company have? They have a better option than business loan in freight factoring. It is a quick pay tool to convert slow paying client freight bills into cash. It does not need the clients to pay early. It is the factoring company who will buy the freight bills on delivery of the load and give you some percentage of the amount of the freight bills.
They even collect the bills from the clients on the due date. Generally they would provide you an advance of 90% of the bill amount. The remaining 10% is paid after the customer makes the bill payment. A small factoring fee is taken from this 10% based on how long the invoice is factored and the monthly volume of factored invoices. Discount rates range between 1.5% and 4% per month depending upon the above factors.
Freight factoring is better than conventional loans in more ways than one. It is easy to get it and that too in just a few days. There are certain limitations to the amount of loan you are taking, but if you consider the freight factoring option it has no such limits. As your sales grow so does your factoring amount! Thus your financing is directly related to your transportation company’s growth. If you arrange with the factoring company to collect the bills on your behalf, you are relieved of credit collection. You can use that time and money to invest more in your business. Factoring companies also regularly provide you with receivables and payment statements, which help you to streamline your business.
Most factoring companies buy the bills using non-recourse invoice factoring. Under this agreement the factoring company bears the risk of non-payment due to insolvency of your customer.
Not many banks provide factoring services. However there are many new factoring companies coming up who have professionals working with them and offer good services and competitive prices. There are many companies coming up, who advertise on the Internet also. You could check them out and make a long-term contract with a company that gives you and your customer quick and courteous service.
Freight factoring gives you the advantage of improving the cash flow and helps you to concentrate on the growth of your business. It is a very good finance option. Rather one may say that it is an extension of your business. Thus if you have a transportation company you may use the services of a factoring company and take your business to the next level.