The transportation market in Canada is very competitive. Shippers have a number of competing alternatives to chose from. This allows them to pay rock bottom prices for shipping a freight load, and enables them to dictate their payment terms. Some shippers may pay your invoices quickly, if you give them a discount. But many shippers refuse to offer quickpays, and instead, demand 30 to 60 day payment terms.
Payment terms create cash flow problems
Unfortunately, many carriers and brokers cannot afford to offer payment terms. They don’t have the financial wherewithal to wait up to two months to get paid. This makes operating a business under these conditions is very difficult. And if you don’t keep a careful eye on your cash flow, you could end up with serious financial problems.
Is a line of credit the best solution?
One way to solve this problem is to use a bank line of credit. You can use it to pay your expenses – drivers, repairs and fuel – while you wait for your invoices to pay. The problem is that getting a line of credit is very difficult, especially for carriers and brokers. Most banks have very strict lending criteria and will only provide financing to companies with ample collateral, spotless financial reports and a proven track record. Unfortunately, many transportation companies can’t meet this criteria. Fortunately, there is another solution that can solve this problem.
Finance your transportation receivables
You can solve the cash flow problems created by slow paying clients by factoring your freight bills. It works by partnering with a financial intermediary who funds your invoices from slow paying clients, and settles the transaction when they pay on their usual schedule. This provides you with funds that were previously locked in your accounts receivable.
This solution provides you with important benefits. It will stabilize your cash flow, ensuring that you have funds to pay your expenses. Also, it will allow you to work with clients that do not offer quick pays, because you’ll be able to finance their invoices.
How does it work?
There are two ways to finance a transportation receivable. Small companies often use a single installment method where the freight factoring company finances your invoice in a single payment. This payment is usually for 95% to 97% of the face value of the bill. The remaining amount is settled as the fee once your client pays.
Larger companies and freight brokers often use a two installment method. The first installment covers 90% of the invoice and is provided once the load is delivered and confirmed. The second installment covers the remaining 10% and is rebated once your client pays. The factoring fee is often discounted from the second installment. This two installment method usually has lower fees than the single installment method.
One important difference
Note that transactions for freight brokers have a slightly different structure. They are always structured using two installments. Additionally, the factor will pay your carriers directly from the first installment and then remit all other funds to you. This simplifies your operations and allows you to focus more effectively on growing your business.
Qualifying for receivables factoring is easier than getting conventional financing. Factoring companies do not have complicated application and collateral requirements. However, it’s important that you work with shippers and commercial clients that have a good reputation and solid credit. Their invoices back the transaction.
Also, it’s important that your company be free of serious legal and tax problems. Lastly, your invoices should not be encumbered.
How long does it take to set up
Most transportation financing lines can be setup quickly – usually the first funding can happen in 5 to 10 business days. Subsequent fundings can usually be done in 1 day. The application process is fairly simple and can be completed in a few minutes, especially if you have your company’s information available.
The big advantage – growth
The big advantage of using freight bill factoring is that the line if flexible and can adapt to your growth. It will increase to match your revenues, as long as your freight bill qualifies. This makes it an ideal option for growing carriers and brokers that have great potential, but are running into cash flow problems because of slow paying shippers.
Get more information
Are you looking for freight bill factoring? We are a leading factoring company in Canada and can provide high advances at low rates to truckers and brokers. For information, get an online quote or call (877) 300 3258.