Financing Your Trucking Company with Freight Bill Factoring
Managing cash flow is one of the most challenging duties of owing a trucking company. As an owner, and entrepreneur, you have to deal with the constant tug of war between slow flowing income and quick expenses. On one hand, your drivers need to be paid regularly and you have constant fuel and repair expenses. But on the other hand, most of your shippers and commercial clients demand payment terms - and will only pay their bills in 30 to 60 days.
The problem is a few carriers have had the opportunity to build a reserve bank account that can be used to cover these expenses, while waiting for slow payers. It's very hard to build a reserve while trying to grow a business at the same time. Obviously, most carriers wouldn't have a problem is their shippers offered quick pays. But many don't, so you need an alternative to quick pays.
The alternative - finance your freight bills
One way to get the benefits of a quickpay, but without asking your shippers to pay sooner, is to finance your invoices. When used correctly, this solution can provide the working capital you need to operate your company and put you on a stable financial platform - which allows you to focus on growth. Think about it this way - if all your clients paid quickly - would you have cash flow problems? You can accomplish that with freight factoring.
How does it work?
The transaction is fairly simple. A transportation factoring company advances funds for your slow paying freight bills from quality shippers. You get immediate working capital that helps you pay your drivers, fuel and repairs. The transaction closes when your shipper pays, on their usual schedule.
Small carriers usually get funded using a a full advance of 95% to 97% of the invoice, as soon as the load is delivered, accepted and verified. It provides the higher amount of working capital for a fixed cost. However, these transactions can be more expensive than two installment transactions.
Larger carriers often opt to get funded using a two installment method. Although it provides a lower initial advance, these transactions often have a lower price. They are structured as follows:
- The freight load is delivered and accepted by the client
- You send the freight bills and documents for financing
- The factor advances 90% of the invoice
- Your client pays the invoice in 30 to 60 days
- The factor advances the remaining 10%, less the fee
How are fees calculated?
The fees are usually based on the size of your invoices, the credit quality of your shippers and the number of clients you have. They go on a scale of 1.5% to 3% per 30 days, based on a number of criteria. However, fees and schedules vary. Here are some tips if you want to negotiate better terms.
Who can qualify?
Qualifying to factor your transportation receivables is easier that getting other types of funding. Your transportation company should be set up and have its authority and proper insurance. Also, you should work with shippers that have good commercial credit. While they can pay slowly, it's important that they pay reliably. As part of our services, we can help you determine the creditworthiness of your customers. Also, your company should not have major legal or tax problems and your invoices should not be encumbered.
One of the biggest advantages of financing your transportation receivables is that the program is ideally suited to fuel growth. The size of the line is determined by the size of your sales. And the line will grow and adapt to your growth, as long as your invoices the meet the funding criteria. This makes it an ideal solution for growing carriers whose biggest problem is slow paying clients.
Transportation receivables factoring rates as low as 1.50% - Get an online quote or call (866) 730 1922 to speak to a representative.
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