WHAT'S IN THIS GUIDE
Whether you’re an owner-operator or a large trucking company, you face many challenges every day, from managing a fleet of drivers and vehicles to navigating customer demand and ever-changing regulations. But one issue that affects trucking businesses the most is cash flow.
A health balance of incoming and outgoing funds is essential for the survival of any business. In fact, 82% of small businesses fail due to poor cash flow. And the trucking industry has its own set of challenges when it comes to steady, consistent revenue.
Access to steady liquidity can be difficult when customer payments are slow or delayed, leaving truckers with limited options for staying afloat. Constant cash outflows from rising fuel costs, fleet maintenance, and driver payroll add up quickly. Combined with long payment terms, the cash flow gaps take your time and resources away from growth opportunities. And with many trucking companies still recovering from the pandemic’s effects on their business—a time when late payments were up 500%—cash flow is more important than ever.
Fortunately, there are ways to close this gap and foster steady cash flow. Invoice factoring allows trucking companies to access much-needed capital in exchange for their outstanding invoices. This funding method provides an efficient way for trucking companies to manage their finances so they can scale their business.
Factoring in trucking involves selling your unpaid invoices, also known as accounts receivable, to a factoring company (or invoice factor) at a discount to receive payment faster. The factor gives you working capital for your invoices in days, less a fee, and waits for your customer to pay on net terms. When you work with factoring companies for truckers you no longer have to wait for months to get paid.
Small- and medium-sized trucking companies that may qualify for freight factoring services include freight brokers, trucking fleets, professional services, owner-operators, companies with 1-5 trucks, semi-trucks, freight businesses, dump truck haulers, large transportation fleets, over-the-road operators, single drivers, and more.
It depends on your situation. You’ll need to evaluate:
All of these questions will help you determine if invoice factoring is worth it. The company you work with also makes a big difference in the value you get from factoring.
Invoice factoring is a simple process. Here’s how it works in 4 easy steps:
This can provide valuable financial stability and the ability to take on growth projects for truckers.
One of the most common reasons for trucking companies to seek invoice factoring is payroll, so let’s use that as an example. A trucking company needs to make payroll for their fleet and pay for gasoline and vehicle maintenance—but there may not be not enough cash for all of these expenses. Without access to immediate capital, the business could be stuck in a cash crunch.
Invoice factoring ensures that trucking companies have the capital they need to continue operations. For example, let’s say that a trucking company has $100k in outstanding invoices and they need cash for payroll ASAP. They apply for funding with FundThrough and get funded $97,250 in just a few days, at the discounted rate of 2.75% for 30 days.
By factoring their invoices, they can get the funds they need quickly so they can keep their drivers on the road. In this way, invoice factoring helps truckers maintain their operations and manage cash flow more effectively.
There are many reasons factoring for trucking companies is a popular way to get financing – here are a few our trucking company clients seem to appreciate the most from our experience:
With the cash advance you get from your outstanding invoices you can pay for common expenses such as:
Many factoring companies charge between 1% and 6% for their discount rate, or the fee they keep from your invoice. A good factoring rate will be somewhere between these two numbers, and importantly, that should be the only fee you pay. Sometimes, a really low discount rate means hidden fees will be added to your total cost. There are two main types of freight factoring rates for trucking companies:
See FundThrough’s pricing page for what you could expect to pay for funding invoices with us.
All factoring have their own requirements for qualifying, but here are a few common ones:
Here are a few of the documents you’ll likely need to have ready:
There are several differences between invoice factoring and bank financing that trucking businesses and transportation companies should be aware of before applying:
The Benefits of Factoring Over Bank Financing:
The Downsides of Factoring Over Bank Financing:
Your questions answered.
It depends on the freight factoring company and the period of time the invoice remains unpaid. But fees can be as low as 1% and as high as 5% or more. FundThrough has a transparent pricing structure so you always know your rate before you factor an invoice. At FundThrough, you’ll find options that help small businesses meet their financial goals.
Generally, no. Many trucking factoring companies have contracts that don’t allow this to limit their risk.
Yes. It matters that the factor you choose to work with understands and has knowledge in your business. They can help you get the funding you need quicker and easier if they have an ongoing relationship with you and understand your goals. (At FundThrough, we’re familiar with trucking factoring.)
A factoring company in trucking is a business that provides financing solutions to trucking and transport companies by purchasing and collecting on their invoices. By doing so, reliable factoring companies can provide fast access to capital without long processing times. This type of funding enables truckers to maintain positive cash flow more efficiently and have the financial stability they need to run and grow their business.
Interested in possibly embedding FundThrough in your platform? Let’s connect!