Managing the cash flow of a transportation company can be very challenging. You have a number of expenses which have to be paid quickly – fuel, drivers, repairs, etc. On the other hand your income from freight bills is slow to come by since shippers can take up to 60 days to pay their invoices. This can create a cash flow imbalance since expenses are going out faster than income is coming in. Larger companies can deal with this problem by either dipping into cash reserves or by getting a bank line of credit. Unfortunately, most small transportation companies don’t have cash reserves and can’t qualify for conventional bank financing. There is an option however.  There is a source of financing that has been gaining popularity in the transportation industry as a flexible solution to deal with cash flow problems –  it’s called freight factoring.

Freight factoring solves this specific cash flow problem by accelerating your revenues due from slow paying clients. It works by teaming up with a factoring company that provides an advance for your slow paying invoices from credit worthy shippers. Your company gets the advance that allows it to meet expenses while the factoring company holds the invoice as collateral. The transaction closes once the shipper pays the freight bill in full.

One of the advantages of factoring freight bills is that it is easier to get than conventional financing. To qualify for factoring you need to have shippers that have good commercial credit and a good payment track record. It’s OK if they take up to 70 days to pay, provided that they pay reliably. Aside from having solid shippers, your company needs to be clear of legal and tax problems.

One reason that invoice factoring has been gaining popularity is that it’s directly tied to your revenues. It increases as your sales increase – provided that your sales are to credit worthy commercial customers. This makes factoring an ideal too for small and mid-size transportation companies that are growing.