Why you may consider trucking factoring companies? As many trucking company owners face quite a few challenges in running a successful business. One of the most pressing is the need for constant cash flow through the business. That’s necessary to pay for fuel, for repairs and maintenance, insurance costs and a great deal more.
However, if you’re stuck waiting 30 or 60 days for a client to pay for a load you hauled, ensuring a constant stream of cash into the business can be next to impossible. There’s good news, though.
Working with trucking factoring companies can give you the liquidity necessary for stability and even ongoing growth. Before you decide to leap in, though, you should know a few things about factoring and how it works within the freight hauling industry.
We’ll start the discussion with an introduction to factoring as applied to the trucking industry, and then move on to the benefits that you can realise by working with the right factoring company.
What’s Factoring All About?
Factoring is actually a very old commercial finance practice, and it dates back centuries. Really, it’s been around as long as there were business owners with unpaid bills and lenders willing to help them out.
If you were to distill factoring down to its essence, it would be this: The sale of an existing asset owned by your business in exchange for liquid capital. It’s no different from selling unneeded equipment, or liquidating outdated inventory. In this instance, you’re selling an unpaid invoice.
Trucking factoring companies will buy that invoice, pay you an advance, and then re-bill the customer. Once the customer pays the invoice, you’ll be paid the remainder of the invoice’s balance, less a small fee.
So, working with trucking factoring companies offers a number of advantages, including:
- Immediate cash for business needs
- Less waiting for slow-to-pay clients
- The ability to haul more loads and generate more profit
- The ability to avoid conventional lending and adding yet more debt
Of course, the benefits offered by working with trucking factoring companies actually go much deeper than this. We’ll explore those in the next section.
Highlighting the Benefits of Partnering with Trucking Factoring Companies
Before we go on to explore the benefits of dealing with the various trucking factoring companies available, it’s important to understand that this process does come at a cost. The factoring company will keep a portion of your invoice payment.
Usually, this is between 1% and 5% of the invoice total, but it can vary from one factoring company to another. There may also be additional charges assessed that reduce the value of the invoice you sell. It’s in your best interests to analyse the charges and fees a factoring company requires before signing a contract.
Now that we’ve gotten that caveat out of the way, let’s take a closer look at the benefits you can realise with freight bill factoring.
One of the most significant differences you’ll notice between conventional lending and financial solutions available through trucking factoring companies, other than the fact that factoring doesn’t put you deeper in debt, is the speed with which you’re approved. With banks and other conventional financial institutions, you’ll need to wait for weeks just to get approval for your loan, and then weeks longer to see the money. Trucking factoring companies, on the other hand, generally provide approval within just 24 hours.
The immediate upshot of this speed is that you can use factoring to address cash flow emergencies. Bank loans cannot be used in this way – they simply take too much time. The same applies to lines of credit.
By factoring freight invoices, you’re able to address your cash flow problem right away, and then use that money to grow your business, whether you need cash for fuel in your truck, to pay insurance, to pay other drivers, or something completely different.
The Availability of Perks
Yet another benefit of working with a factoring company that specialises in the trucking/freight sector is that you have access to additional services that go beyond cash advances on invoices. What’s your single largest headache as a truck driver and business owner? Chances are good that is involves the cost of fuel for your truck. Many factoring companies offer discount fuel cards that can be used at truck stops and service stations across Canada, allowing you to save a great deal of money over time.
Other perks that might be available to you include fuel advances (a pre-advance on the invoice), and back-office services like billing and collections. In fact, many trucking factoring companies can free up a great deal of your time to do what you do best – focus on growing your business – rather than being bogged down with administrative tasks.
Improved Potential for Growth
In the trucking industry, building profitability requires that you take on more jobs. That can be difficult if not impossible to do if you’re waiting on an infusion of cash when your client finally gets around to paying their bill. Partnering with trucking factoring companies offers the ability to grow your business without all the waiting around (and potential missed opportunities that result).
Beyond the growth potential, there’s a great deal to be said for the stability offered by having access to positive cash flow. Rather than waiting and wondering when you’ll be paid, you can take your advance and move on to the next job. Rather than wondering if you’ll be able to pay for fuel, or for truck insurance, or the payment for the truck loan itself, you’ll know that you can handle those situations without an issue.
That equates to peace of mind, less stress and a significant improvement for virtually all trucking business owners. You’ll also find that a factoring line is scalable – it grows with your business, offering the ability to maintain a consistent flow of capital into your company no matter how large it grows, or how quickly growth occurs.
No New Debt
We’ve mentioned this one in passing, but it bears further scrutiny. Perhaps the single largest drawback to conventional lending is that you’re just taking on more debt, and digging a deeper hole from which you’ll eventually have to climb out. In short, you’re really just mortgaging your company’s financial future for a limited infusion of cash that will run out very quickly.
Partnering with trucking factoring companies does not incur any additional debt. In fact, it’s a positive in your books – you’re selling an asset and receiving cash in exchange. The factoring fee charged is not considered debt because it’s simply the cost of doing business, and there are no payments to make on it.
The factoring company will take the fee out of the remaining balance on the invoice after the client pays, before remitting the balance to your company. Without the need to further shackle your company with debt, your financial future is freer and unencumbered by creditors clamoring for their payments.
You Take on Better Customers
An interesting benefit of working with trucking factoring companies is that it can actually allow you to improve the quality of the customers you serve. As part of the agreement you sign with the factoring company, you’ll need to wait for approval before taking a job while the factor investigates their creditworthiness. Based on that assessment, you’ll be approved for factoring or not.
It’s your decision whether to take the job in both instances, but if the factoring company does not approve because the client represents a significant risk, you’re on your own and will not be able to get a cash advance.
In short, you’ll be left waiting and wondering when payment will be remitted, or if it will at all. By taking on only approved jobs, you’ll be able to reduce the risk your own company faces and work with clients you can trust to pay and to pay on time.
Obviously, partnering with trucking factoring companies can provide you with access to some significant benefits. However, is it the right choice for your particular trucking company? We’ll explore that in the following section.
Is Contracting with Trucking Factoring Companies Right for Your Business?
Selling invoices to trucking factoring companies can provide a vital infusion of cash for small firms and those experiencing significant growth. However, it’s not the ideal fit for everyone. How do you know if it’s the right choice for you? Let’s dig into the topic a bit so you can see whether it would be good for your business.
You Need Cash Now
Perhaps the single most important criteria for benefitting from contracting with trucking factoring companies is that your business needs an infusion of cash, and it needs it now. If you can afford to wait, and it would just be “nice” to have a little extra capital on hand, this is probably not the right option for you.
Factoring can be expensive, and in the long-run, conventional financing options are cheaper. Moreover, you will not recoup 100% of what your client owes you if you sell the invoice. The factoring fee and any other charges assessed by the factoring company will reduce that amount. So, if you can wait, that’s generally the better option.
Your Credit Isn’t Perfect
Lenders have tightened their criteria to the point that unless your credit is spotless, you stand little chance of getting a business loan or line of credit. If you find yourself in the position of needing capital but not being a good candidate for a bank loan, then financing freight bills can give you the financial relief you need. However, if you have good credit, or collateral that can be put up to secure a loan or line of credit, that could be a better option, as you’ll ultimately save money.
You Could Benefit from Additional Services
Small trucking companies often struggle to balance hauling loads and back-office administrative tasks. If your business could benefit from additional services, like billing and collections, then dealing with trucking factoring companies could well be worth your time. Of course, you’ll need to ensure that the factoring company you choose offers the services that you need, and that they don’t charge additional fees for those services.
You Can’t Get Discounts
Large trucking companies have enough clout to secure fuel discounts from major truck stop chains. However, small trucking companies lack that ability. By working with a factoring company, you can qualify for significant savings at the pump. However, you’ll need to make sure that the discount card offered is valid at the stations you frequent, or that stations that accept the card are located on the routes you travel.
In most instances, factoring invoices is a smart decision that can unlock capital tied up in unpaid invoices, freeing you to grow your company. However, a great deal depends on the factoring company itself, and you’ll need to choose carefully. That brings us to our next topic – how to ensure that you’re making a smart choice.
Choosing Your Factoring Company
When it comes to benefiting from relationships with trucking factoring companies, the firm you partner with is the most important part of the equation. With the right business, you’ll see an influx of liquid capital, be able to take advantage of additional services and perks, and even save time and headaches by being able to outsource some of your administrative tasks. However, the wrong company can cost you a great deal of money, and even lock you into a contract that costs a great deal of money to break.
When choosing a factoring company, make sure you check the reputation for any firms you’re considering. You also need to look closely at their fee structure, the advance amount, whether they offer recourse or nonrecourse factoring, how they handle collections, and a great deal more.
If that sounds like a lot to consider, it is. In fact, many trucking company owners find this to be incredibly stressful and time consuming. We can help, though.
We specialise in helping our clients connect with the right factoring company for their needs. We invite you to take advantage of a free consultation with one of our factoring specialists and learn how simple it can actually be to find the right partner.