Factoring Blog

Factoring Financing for Small Freight Carriers

The owners of small freight carriers constantly face challenges with their cash flow. They usually run lean operations that have little money to spare. On one hand, they need to pay their drivers, fuel, maintenance, and equipment costs, on a regular basis. But on the other hand, most customers pay their freight bills on 30 to 60 days. And as small business owners, they are left in the middle trying to juggle the situation.

The problem for small carriers

Most small carriers and brokers are run by individuals who cut their teeth in the industry – they have a lot of experience finding and moving loads. They have the right contacts with shippers and corporate clients. But they don’t have a lot of money. Actually, most have little money to spare. And to make matters worse, most owners did not take into account that shippers would pay slowly when planning their businesses. Because of this, they don’t have the needed reserves to run the carrier for two months, while waiting for a client to pay. But if you can’t offer terms to your shippers, you won’t be able to grow.

One solution – use quick pays

Of course, one alternative is to ask your customers for a carrier quick pay. And if your shippers and customers offer quick pays and pay their invoices in 10 days, you won’t have many cash flow problems. The problem is that few shippers pay quickly and reliably. Often, they may pay slowly so that they can keep their own cash flow in check. This means that your cash flow will be unreliable, even if some of your clients transaction to quick pays. Because of this, many growing transportation carriers prefer to use business financing to cover their expenses while waiting for invoice payments.

Business financing – a better solution?

Although most freight brokers and transportation companies try to obtain conventional business financing to cover expenses, few actually qualify for this type of funding. Most banks and lending institutions have very strict collateral and profitability requirements, and will only provide funding to companies that have plenty of assets. Aside from this, they most institutions only work with companies that have strong balance sheets and steady income statements.  This leaves most small business owners out of the running. For many of them, their business is their only and biggest asset and they have little else. Fortunately, there is an alternative that can solve cash flow problems and is easier to get than conventional financing. The solution is to factor your freight bills.

Transportation finance for small trucking companies

Freight bill factoring is a form of financing where finance company advances money to your company using your invoices (and freight bills) as collateral for the transaction. Instead of waiting 30 to 60 days to get paid by your client, you get the equivalent of a quick pay from the factoring company. The transaction closes once your customers pay their invoices in full on their usual terms. The important advantage of this solution is that your customers do not need to modify their payment habits. Using this solution, you have the flexibility to offer payment terms to your clients, without worrying about slow payments.

Works with fuel cards

Most transportation finance plans work with fuel cards. They can advance the funds to your card account, providing you with immediate access to your money and allowing you to cover important payments. Additionally, many finance companies have partnerships with fuel card programs which provide you with additional discounts.

Other Advantages

One advantage that makes factoring stand out in front of other solutions is that qualifying for it is relatively easy. The biggest requirement is that your shippers and customers must have very good commercial credit. This is very important because their credit worthiness and reliability is what is backing the transaction. Additionally, your company should be well managed, have good growth potential, and have invoices that are free and clear of liens.

Using accounts receivable factoring can also provide you with a competitive growth advantage. This is because the financing facility is directly tied to your sales (through your invoices) and can increase as you deliver more loads for new clients. This can provide the support you need and ensures that your cash flow keeps up with your corporate growth. Because of this, it’s a perfect solution for small freight carriers that have cash flow problems but can’t qualify for a conventional business loan.

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