It is tough to manage cash flow in this truck business as the customers can take some time to pay their bills. Some might take 30 days, while some can take 90 days too. It is important to have cash flow running to operate your trucking business. Factoring will give you money to continue running without waiting for customers to pay.
How Does Factoring Work?
You send the invoice to a factoring company, but with the difference of not waiting for the customer to settle it after sending the shipment. Your factoring provider will advance you within one or two working days on a part of the value of the invoice, mostly between 80% and 90%. You factor in the invoice, and the factoring company reimburses your client for the balance. This is possible by charging an extremely small fee, usually about 1% to 5%.
Benefits of Factoring for Trucking Companies
- Instant Working Capital: A trucking business can not survive without running cash flow; you cannot be fully dependent on the bills from your clients. Factoring can work over this problem. Funds are advanced against an invoice when you submit it, thereby giving you an instant fix and relief from ongoing expenses in the form of gas, wages, and maintenance.
- No Repayment Obligation: No repayment obligations coupled with factoring. This is not a loan; it is selling your bills. Hence, it’s going to be easier to manage finances if you have a business because you will not add any type of debt to your balance sheet.
- Expert Collections: The factoring business takes up the responsibility to collect payment from your client once you sell them the invoice. Now you can concentrate much more on your business rather than wasting so many hours trying to chase up the money.
Before you begin with factoring, find a reliable trucking-specific factoring company. You should expect to receive the advance within a day or two after presenting your bills. Since they are assuming the risk of making the payment, they research whether your client is valid. This no-nonsense, easy process lends itself quite well to increasing the financial security of your trucking business.
