Factoring Blog

How to Use Factoring to Finance your Trucking Company

factoring for trucking companiesFinding the right financing solution for a trucking company can be difficult. Most owners are very good at finding loads and running their trucks, but often fall short on the financial side of things. This can be a serious problem because most growing trucking companies will need financing at some point to succeed. And without it, they will often sputter along. Or worse, they will run into financial problems.

Shippers that don’t offer quick pays

For many companies, the problem is very simple. They work with corporate clients and shippers who don’t offer quickpays. Instead, they ask for credit terms and pay invoices in 30 to 60 days. This can create a problem for a very simple reason. Few owners can afford to deliver a load and then wait 60 days to get paid. They just don’t have the resources to do that. They need money to cover their operating expenses. To pay drivers, fuel and other expenses.

Actually, most owners don’t take slow client payments into account when planning to start their trucking company. They focus on finding loads and on delivering them on time. They only become aware of the cash flow problem when it hits them, usually when the company is growing quickly and they need money urgently.

The problem with lines of credit and business loans

One way to fix this problem is to use business financing to cover the gap in your working capital. You can fix the gap in your cash flow by using a line of credit, or a business loan. The problem is qualifying for one. Most lending institutions have very stringent application requirements and will only finance trucking companies that can show:

  • Audited financial statements
  • Growing revenues and profits
  • Collateral to secure the loan

Few small trucking companies will be able to meet this criteria. And those that do, may find that conventional financing can be very  restrictive. The line will not grow, at least not quickly, once you get it. And, you the line will also have a number of covenants and financial ratios you have to meet. It is not unusual for successful trucking companies to outgrow their current financing and then run into the same problems again. Fortunately, there is another option that can fix this problem effectively.

Fix the problem – accelerate revenues

The problem is actually fairly simple. Your corporate clients and shippers are paying slowly and you need the money sooner. You can solve this by factoring your freight bills. This handles the issue by providing financing for your slow paying invoices. Your transportation company gets immediate working capital to operate. The transaction settles once the invoice is paid in full by your client.

Flexibility

The most important advantage of financing your trucking receivables is that the solution is flexible and will grow with your business. Since the freight factoring company is financing your invoices, the line will increase as your invoices grow. This type of flexibility is ideal for growing companies that need to offer credit terms to their shippers, but can’t afford to.

Also, getting this type of financing is easier than getting a business loan. You need to work with shippers that have good credit, because your receivables back the transaction. Aside from that, your invoices need to be free of liens and you company should not have serious tax or legal liabilities.

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