Financing For Freight Forwarding Companies

As a freight forwarder, you have the primary task of handling the complex shipping and warehousing needs of your clients. You need to work with transportation companies that are reliable, warehousing companies that provide good services, and other vendors that enable you to provide proper supply chain management functions. Most of your vendors, especially trucking companies, require quick payments.

On the other hand, most of your commercial accounts are likely to negotiate invoice payment terms. Often, companies request 30 to 60 days to pay invoices. As a freight forwarder, you are expected to offer terms if you want to win new accounts – and keep the clients you have.

The difference in timing between expenses and revenues often creates financial problems.

Offering terms can create problems

If your company is well funded and has cash reserves, offering terms should not be a problem. You can pay your vendors out of your reserves and then replenish your account as soon as your clients pay. However, if you don’t have reserves, you will run into problems. At the very least, your company will have to grow slowly. At worst, you could run out of money and be unable to pay your vendors. As a result, always watch your cash flow carefully.

Finance your slow-paying receivables

One way to solve this problem is to use freight bill factoring to finance your receivables from slow-paying, but creditworthy, customers. Instead of waiting up to 60 days to get paid, you can get an immediate advance from a factoring company. You get quick liquidity, while the factor holds your invoice and waits for payment. The transaction concludes as soon as your client pays for the services in full.

Most receivables are funded using two payments: the advance and the rebate.

The advance

The advance is provided to your company as soon as the services – transportation, assembly, packaging, or warehousing – have been provided and accepted by your client. The factor reviews the documentation to ensure everything is in order and then wires the funds. The advance is based on a percentage of your receivable and ranges from 80% to 90% of the gross value.

The rebate

Once your client pays, the factoring company rebates the remaining 10% to 20%. The finance fee is discounted from this payment.

Benefits

The most important benefit of freight bill financing is improved cash flow, since you can finance your invoices when you need funds. When used correctly, this program provides an ongoing source of working capital and minimizes issues with slow-paying invoices. Also, the line can grow with your business, as long as your invoices have good credit quality. This feature is attractive for growing companies.

Qualification criteria

Unlike banks and lending institutions, factoring companies consider your receivables to be their main collateral. Consequently, the most important requirement is to have commercial clients with great commercial credit. In fact, the whole transaction depends on it. However, your freight forwarding company should also:
  • Be free of serious legal/tax issues
  • Be well managed
  • Have unencumbered accounts receivable

Can be deployed quickly

Most factoring finance companies are used to working with companies that are growing quickly and need immediate funds. The application process can be completed fairly quickly, and you can get your first infusion of funds in five to ten business days. Subsequent transactions can be handled in as little as one business day. This rapid turnaround makes freight bill financing an ideal option for freight forwarders that need immediate funding because they have slow-paying customers.

Get more information

We are a leading freight factoring company in Canada and can provide you with high advances at low rates. For a quote, please fill out this form or call (877) 300 3258.