Freight bill financing has been gaining popularity as a way to finance growing trucking carriers. Factoring helps trucking carriers improve their cash flow by enabling them to finance invoices that take 30 days or longer to pay. This article helps you understand the most important benefits of freight bill factoring. To learn more, read “What is Freight Bill Factoring?”
Benefit #1: It improves your cash flow
The most important benefit of freight bill factoring is that it improves your cash flow. This benefit is the main reason why carriers use factoring. Instead of waiting 30 to 70 days for clients to pay for a load delivery, you get immediate payment from the factoring company. This accelerated payment provides the cash flow you need to pay short-term expenses and take on new clients.
Benefit #2: Take on new clients
Most new carriers find it challenging to offer net-30-day terms to their shippers. They don’t have the financial reserves to handle pick-up and delivery expenses and wait 30 days to get paid. Consequently, these carriers must turn away some loads. Factoring allows you to take on new shippers on net-30 terms with confidence. You will be able to finance their invoices upon delivery of the load and get paid promptly by the factor.
Benefit #3: More reliable than quick pays
Getting quick pays from a shipper is great for your cash flow. Unfortunately, quick pays aren’t always reliable. Shippers offer to quick pay only when it’s to their advantage. They use them when they have the cash flow to take advantage of the early payment discount. However, shippers may limit or take away quick pays during tough economic times or if they have cash flow problems. Factoring your invoices provides more reliable cash flow than quick pays. Factoring companies will finance your invoices as long as the invoices and your company meet the funding criteria.
Benefit #4: Less bad debt and better-paying shippers
As part of its service, a factoring company checks the commercial credit of your shippers and brokers. This service helps you pick better clients – as you offer 30-day terms only to clients with a good payment record. Shippers with a negative payment history can be asked to pay up front or can be avoided altogether. Following this strategy has two important outcomes. First, it improves your cash flow and minimizes the time that you spend on collections. Second, it reduces the chances of hauling a load for a shipper that could default on payment. This reduces your chances of getting bad debt.
Benefit #5: Grows as you need it
Most factoring lines have a credit limit tied to your company’s revenues and capabilities. The line is flexible and can be increased easily to accommodate growth as you add shippers and drivers. Most line increases are evaluated and processed in one business day.
Benefit #6: It’s easy to get
Qualifying for a factoring program is easier and simpler than getting a conventional business loan. In general, your invoices must be free of liens. The factoring company can verify this in most provinces through a PPSA search. The only exception is Quebec, which has a different process. Other than that, your shippers and brokers must have good commercial credit, and your business must not have a serious issue.
Benefit #7: No long-term contracts
Most freight bill factoring lines don’t require a long-term contract. Instead, you can use the line as needed for a short period. This benefit is important because it helps you lower your financing costs. Note that a factoring company will sometimes ask for a longer-term contract. This request usually occurs in special situations, such as a company going through major challenges, a restructuring, or a negotiated discount.
Benefit #8: You can get it quickly
Most factoring lines can be underwritten and deployed in days. This quick turnaround makes factoring an ideal option for carriers that have immediate cash flow needs. Note that quick funding can happen only if the factor gets all the proper documentation quickly and if they are able to set up the accounts and verify freight bills in a timely manner.
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We are a leading freight bill factoring company and can provide competitive terms. For more information, get an online quote or call us toll-free at (877) 300 3258.