Using Factoring to Finance your Expanding Trucking Company

It’s difficult to finance a trucking company, even though trucking companies usually need funding to succeed. Trucking company cash flows are intensive: expenses flow out constantly – to cover drivers, fuel, and truck repair expenses, to name a few. These expenses need to be paid regularly to keep the company running.

Income, on the other hand, flows slowly because many carriers and brokers often work with shippers who do not offer quick-pays. Therefore, they must wait 30 to 60 days to get their bills paid.

Most truckers are in a financial bind

This scenario paints a bleak picture. Expenses are regular but income is not – resulting in a gap in your cash flow, even if your company is profitable.

If you have a cash reserve, you can cover business expenses while waiting for invoices to pay. If you don’t have a cash reserve, you must manage your cash flow carefully, or you could experience serious financial problems.

Obviously, you could close this gap and eliminate most of your problems if your clients paid sooner. Sometimes you can convince clients to pay sooner, especially if you offer them an incentive to pay quickly. But if they cannot – or will not – pay quickly, you are left with two options:

  1. Stop growing your business, or
  2. Get business financing

This last point creates another problem. Most lending institutions are not eager to lend money to transportation companies, especially small ones. Furthermore, even if you can qualify for a business loan, the process is slow, cumbersome, and full of uncertainty. Fortunately, small business loans are not your only option.

How to finance your trucking company

If you are operating a transportation company and your biggest financial problem is that your customers are paying slowly, consider factoring your freight bills. In essence, it provides many of the benefits of getting a quick-pay from a shipper. However, the quick-pay does not come from your client, it comes from the factoring company.

Factoring freight bills is a simple transaction. Your freight company sells its invoices/freight bills to the factoring company, who handles the financing.

They initially advance you 90% of the freight bill (the initial advance amount can vary based on your volume and client credit quality). Your company gets the remaining 10% (less the discount for the service) once your shippers pay their freight bills in full. You can use this type of funding regularly to improve your cash flow and cover corporate expenses.

Important benefits

One important advantage of freight factoring over other solutions is that most  factoring companies consider the credit quality of your invoices as your most valuable collateral. Small companies with a solid roster of clients can usually qualify for factoring, as long as they meet the other funding criteria. This is simply not true for other forms of funding.

Another advantage is that the program can be set up quickly – usually in about a week. Because funding can be set up quickly, factoring can also be used in situations involving immediate financial problems.

Factoring freight bills can be a great alternative for transportation companies who have great potential but also have cash flow problems due to slow-paying clients.

Need more information?

We are a leading freight factoring company and offer low rates and high advances. For information, please get an online quote or call us at (877) 300 3258.