WHAT'S IN THIS GUIDE
Managing cash flow is vital for transport and trucking companies. On top of making sure the work gets done, you also need to make sure you have enough cash in bank to make payroll, cover repairs and maintenance for your fleet, pay for fuel and fuel cards, manage all trucking operations and equipment financing, and balance the costs of day-to-day business expenses. Talk about pressure! Add to that the fact that many brokers and shippers pay 30, 60, or even 90 days after being invoiced, leaving you without the working capital you need to cover expenses. You can also forget about taking on company growth projects when your cash flow is tied up in accounts receivable.
Wait too long to get paid for outstanding customer invoices, and your business might come to a screeching halt. We know how stressful a problem like lengthy payment terms can be — taking you away from more strategic activities that could grow your business. As entrepreneurs ourselves, we’ve been there! (And it’s why we started FundThrough’s transportation factoring business in the first place). Instead of waiting for months on payment, outstanding invoices are paid within days.
Transportation factoring solves cash flow problems and gives your business the financing and working capital you need to run your business. With fast, flexible factoring services at your fingertips, you have peace of mind that your expenses are covered, and the ability to go after big jobs that will help you continue to grow.
Transportation factoring is a type of short-term financing where a transport or trucking company sells its outstanding invoices to a factoring company, like FundThrough, in exchange for funds ahead of schedule. This convenient payment solution works just like regular invoice factoring, except it’s specific to businesses in the transportation industry. Once you sell an unpaid invoice to the factoring company, you get a percentage of the invoice value as an advance. The factoring company then works with your customer to settle the invoice according to the original payment terms. In most cases, you can get a positive cash flow boost in as little as a few days, so you can get back to hauling people, products, and loads. Faster payments mean no more turning down that next big contract, or putting off your goals for business growth. This funding freedom is why the popularity of factoring continues to grow.
In a nutshell, transport invoice factoring or freight factoring is a financial service that:
FundThrough provides working capital based on the size of your outstanding customer invoices. We use a combination of AI and automation to make the funding process fast and easy. The transportation factoring process is actually pretty straightforward. Here’s how this convenient payment solution works:
FundThrough is an industry leader in freight bill factoring. By leveraging technology to automate the payment of your outstanding invoices, FundThrough can provide you with a funding decision and process your invoices in a matter of days.
Holding receivables on the books for months costs small and mid-sized transport businesses as much as $3-trillion annually, according to Sage. In simple terms, that means that 1 in 10 invoices are not paid on time. Cash flow is stifled, and the working capital needed to grow your company is held up. Sure, freight invoice factoring can help you get outstanding invoices paid faster, but there are so many more additional benefits of factoring you might not have thought about, including:
Invoice factoring has many benefits for the transportation and carrier industry. Along with the advantages, there are also a few perceived disadvantages.
There are many use cases for factoring, and each company will have their own reasons for why they want to factor invoices and how they use their newfound funding boost. Aside from the obvious use case of getting invoices paid ahead of lengthy net terms, the transportation industry uses invoice factoring for:
Growth projects. Without enough cash on hand, it can be difficult to cover everyday expenses and go after big hauling jobs. These types of business growth opportunities allow you to expand your business, but you need to be able to make sure you have cash on hand to take on new opportunities. Transportation factoring can help bridge any cash flow gaps you might experience during periods of company growth.
Covering payroll. Trucking and freight companies are often stuck waiting weeks or even months to get paid by their customers. This can cause all sorts of cash flow difficulties. With transportation factoring, you can get outstanding invoices paid in a matter of days vs waiting for weeks on extended net terms, which means you always have payroll funding.
Purchasing equipment and supplies. When a new job comes in, you might have to purchase equipment and supplies to get it done. Transportation factoring gives you access to flexible funding faster than a bank.
Hiring staff. As your business quickly grows, you need to be able to hire staff to get the job done. Transportation factoring gives you the funding you need, when you need — even if it’s on short notice.
The main factoring fee is also called the discount rate, and is the amount of money that the freight factoring company withholds from the invoice total as their payment for advancing cash and waiting to get paid for you. Discount rates vary across different trucking factoring companies and are based off their own specific criteria, so we can only speak for FundThrough.
With us, you’ll always know the cost of factoring before you fund an invoice. We don’t charge hidden fees, and and there is no cost to open an account. See our pricing page for more info on our freight factoring rates.
Because we believe in transparency, we clearly communicate your total cost of invoice factoring before you fund, so you can make an informed decision.
Not all factoring companies are alike. Some specialize in only a few industries. Others may have high fees or lack pricing transparency. As a transportation company, it’s vital that you work with a factor that understands transportation factoring basics, and the unique aspects of your company’s lack of cash flow.
When choosing the right transportation invoice factoring company, you’ll want to consider a variety of factors:
In addition to the benefits we’ve already covered, FundThrough also:
Your questions answered.
There are a few differences between non-recourse and recourse factoring. Recourse factoring means that your company is responsible for any invoices the factoring company cannot collect on. It is a common type of factoring.
With non-recourse factoring, the factoring company assumes the risk for non-payment of customer invoices. There are usually stipulations on which invoices the factoring company will cover. This type of factoring is more expensive.
Any company that moves passengers and cargo can benefit from transportation invoicing as long as they invoice other businesses. Types of businesses include:
Trucking companies, freight brokers, railroads, airlines, marine companies, couriers, automobile transport companies, oil and gas transporters, dump truck companies, shipping companies, fleets, cruise ship companies, OTR trucking, and start-up transportation companies
Quality freight factoring companies will draw up a factoring arrangement between your business and the factoring company. In this factoring contract, there may be a stipulation that you can only work with one factoring company while under contract.
SOURCES: 1. https://www.sage.com/en-us/
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