Many trucking companies choose to use freight factoring services. But what does this service involve, and why is it so popular? Here’s a guide to what freight factoring is and how it can help you so you can make an informed decision about whether to use it for your own company.
What Is Freight Factoring?
Freight factoring, or invoice factoring, is where you sell your invoices on to a specialist factoring company. The factoring company pays you immediately, minus a small commission, and then chases the invoice from your customer.
You will receive less money than you would from collecting the money yourself. But despite this, it often makes sense to use a factoring company. Here are some of the main reasons why.
Better Cash Flow for Your Company
Good cash flow is important for any company, but in the freight industry, it is even more important. Factoring is a service that is used in many industries. However, freight factoring is seen as particularly useful due to the lengthy payment schedules for deliveries, which can be as much as 90 days.
This leads to a gap in cash flow, and this can hurt the running of your business. By receiving the money you are due immediately, you don’t have to worry about cash flow problems. Getting access to cash quickly helps in the general running of your business whether you need cash for fuel, payroll, maintenance, etc. This is a quick way to get your cash, avoid problems and stay afloat.
Enjoy More Growth
Growth is important for any business and especially when you are starting out. Factoring companies can help you to grow because there is no need to wait for months to receive money. Instead, you can use the money immediately to grow your business without waiting around, and this can make a huge difference when you are starting out.
Save Time Chasing Up Invoices
Time is precious for any business. You want to spend as little time as possible on activities that do not generate revenue, and chasing up invoices is one of those.
You could spend a lot of time and effort chasing up invoices. You are almost certain to encounter customers who do not pay on time for a variety of reasons, and this can not only waste your time but can also cause stress.
So save time in your business by working more on tasks that help you to develop your business and improve your services—and leave chasing up the invoices to someone else.
Get Cash without Debt
You are not relying on credit with a factoring company. Instead, factoring is a fast and easy way to get access to cash that you need right now so you can avoid taking out a loan. If you cannot get funding from a lender, you can still get fast cash using freight factoring, and your credit is not usually an issue for factoring companies.
In addition, depending on the factoring company you use, you could also find that it provides other useful services you can take advantage of. A common service is back-office support, which takes care of your accounts and receivables so you don’t have to worry about them.
You may also be able to use a fuel card program, which can save money on your fuel and simplify fueling up your vehicles.
How to Find a Freight Factoring Company
If you like the idea of using a factoring company, there are a few things to consider when you choose one.
Firstly, look at the fees they charge, because the amount will vary. Also consider how long they have been in business as well as their reviews because you want to choose a company that has a good reputation.
Non-recourse freight factoring is another consideration. This is where you are guaranteed payment even if your customers don’t pay. It is more expensive but can give you extra peace of mind.
Some companies may also require that you invoice a certain amount each month, so keep this in mind.
The best option is to find a listing of freight factoring companies where you can see different companies together. You can then compare them with ease and find the right one for you.
Is Factoring Right for Your Company?
Freight factoring is used by many freight companies for the benefits it provides. Whether it is right for your company is up to you, but consider the benefits and weigh them up against the costs. If you think you can benefit from the service, start looking for a freight factoring company today.
About the author
Joshua Dyer has been working in the freight and trucking industry for many years. He has a lot of business knowledge that he is now sharing with an online audience through his article writing.