If your truck company is routinely facing costs that exceed your available cash on hand, and slow-paying customers are freezing your cash flow, it might be time to consider financing options to help you secure access to quick funding to cover important overhead costs.
One mainstream financial tactic employed by American trucking companies of all sizes and shapes is freight factoring — the process of selling invoices at a discounted rate to cover immediate operating costs. To help you understand the process better, here are some popular questions about the factoring process and some answers to help you decide if this type of financing is right for your trucking business.
- Is factoring a loan?
Factoring is not a loan and factoring companies are not like banks or online lenders. The money they provide you is an advance on an uncollected invoice. Once you enter into an agreement with a factoring company, you deliver your loads to your customers as normal. Then, you send a copy of that invoice to your factoring company and they purchase it at a discount. Factoring companies like Accutrac Capital will advance you upwards of 97% of the invoice, charging a small factoring fee. The remaining 3% is held in reserve. Once the factoring company collects on the invoice, the 3% is remitted to you.
Factoring does not incur debt, and it is not a loan that must be repaid, but rather an advance on money you’ve technically already earned but simply haven’t collected.
- What kind of trucking companies use freight factoring?
Trucking companies of all ages, sizes, and financial stages use freight bill factoring to access the funds that are sitting in their accounts receivable. Start-ups as well as long-established carriers routinely use freight factoring when expenses exceed cash on hand. Reliable factoring companies provide financial solutions to:
- High growth companies lacking sufficient working capital
- Businesses in transition
- Companies experiencing a change of ownership
- Start-up operations
- Companies unable to secure a loan from a bank
- Companies that have not yet transformed their accounts receivable into collateral
- Could working with a factoring company change my customer relationships?
Working with a factoring company proves that you have sound financial tactics. Rather than constantly hassling or turning away customers that take 1 to 3 months to pay on an invoice, factoring allows you to keep strong working relationships with those companies. When your customers know you’re working with a factoring company, they also know that you have the cash in hand to hire the drivers and keep your well-maintained trucks on the road.
- What do factoring rates look like?
The best factoring companies for freight brokers and carriers will specialize in the trucking industry and will have a number of factoring plans custom-tailored to trucking businesses at various stages of growth, such as:
Flat Fee Factoring
- From 1.59% for up to 90 Days
- A simple, easy to manage option
Factoring Line of Credit
- Designed for larger operations
- A flexible line of credit from 0.022% per day
- From 0.49% for up to 10 days
- An ideal option for carriers with fast-paying customers.
Even the largest fleet enterprises experience periods in which their outgoing cash needs exceed the money they have on hand, and freight factoring is becoming a trusted go-to solution. When you factor your outstanding invoices, you are able to focus your attention and time to other areas, such as customer relations, and growth.