Most trucking companies are started by drivers who invest their own money to launch and operate the company. While many drivers have a great deal of industry experience, they don’t necessarily have a lot of capital. Often, this prevents them from reaching their full potential and makes them susceptible to cash flow problems.
Slow payments and cash flow
Most freight carriers prefer to work with shippers and commercial clients that offer quick pays. Receiving payment soon after hauling a load allows the carrier to recover its costs and pay expenses. The problem is that many shippers don’t offer quick pays and, instead, demand payment terms.
This requirement puts your trucking company in a precarious position because you must wait 30 to 60 days to get your invoice paid. Few growing companies can afford to wait that long for a payment since they have a number of expenses to pay. At best, you risk cash flow problems. At worst, you could run out of funds and be unable to pay for drivers, repairs, or fuel.
The solution – finance freight bills
One way to improve your cash flow and to gain a more solid financial position is to use freight bill factoring financing, a business financing solution that has been gaining traction in the trucking industry. Financing your freight bills:
- Addresses the problem of slow-paying shippers by advancing funds for your invoices
- Gives your trucking company the money it needs to pay critical expenses and to grow
There are two ways to finance your transportation receivables. Smaller carriers often use a single-installment transaction in which they get 95% to 97% of the invoice as soon as the load has been delivered and verified. The portion that is not advanced serves as a transaction fee.
Mid-sized and larger carriers often opt for a two-installment transaction in which they get 90% of the invoice as soon as the load is delivered. The remaining 10%, less the fee, is rebated once the client pays in full.
Single-installment transactions provide more cash up front, but they cost more than two-installment transactions.
Most freight financing plans can support your existing fuel card and deposit funds directly into your account. A number of factoring providers actually provide consolidated fuel card plans that take their whole base into consideration and provide even larger fuel discounts to your trucking company.
Some factoring plans can also provide fuel advances to qualified small carriers. These advances are provided as soon as the load is picked up and can help cover the costs of delivery.
Advantages of freight financing
One advantage of freight factoring is that it can be used on a revolving basis, providing a source of constant liquidity for your business. This advantage provides an immediate improvement to your working capital, allowing you to operate your business without worrying about slow payments.
Also, the financing line can grow with your company, as long as you are billing creditworthy customers. Lastly, unlike most bank financing programs, freight financing does not have onerous collateral requirements. Qualifying for funding is relatively easy.
The most important requirement to qualify for freight factoring is to have creditworthy shippers because the freight factor uses your shippers creditworthiness as collateral for the transaction. Additionally, your trucking company should meet the following criteria:
- It must have its documentation up to date
- It must invoice only for delivered loads
- Its invoices/freight bills must be free of liens
- It must not have corporate legal or tax problems
- The owners must have experience in the transportation industry
The cost of a freight bill factoring facility varies based on the size of the receivables you want to factor, their credit quality, and the type of transaction that you want to use. Average rates range from 1.15% to 3.5% per 30 days, depending on these criteria. The rate is often discounted from the full value of the invoice and is assessed once the transaction settles.
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We are a leading factoring company and can provide you with high advances and low rates. Fill out this form for an instant quote. Alternatively, call (877) 300 3258 to speak with an expert.