Trucking businesses encounter various challenges in the transportation industry, such as increasing fuel costs, maintenance expenses, insurance premiums, etc. Many trucking customers, such as shippers and brokers, pay their invoices after 30 to 90 days or more following the delivery of goods. In the meantime, trucking businesses have to cover their operational costs regularly, such as payroll, fuel, repairs, and taxes. This situation can create a cash flow shortage, affecting trucking businesses’ financial stability and growth potential. However, there is a financing solution that can assist trucking businesses in overcoming this cash flow challenge: freight bill factoring.
What is Freight Factoring?
- Freight factoring, also known as freight invoice factoring or trucking factoring, is a form of business financing that allows trucking businesses to sell their outstanding invoices to a factoring company for immediate cash.
- The factoring company pays the trucking business a percentage of the invoice value, usually between 80% and 95%, within 24 hours of receiving the statement. After that, the factoring company obtains the total money from the customer and pays the remaining balance to the trucking business minus a small factoring fee.
- Freight factoring is not a loan or debt. It is simply an advance on the trucking business’s receivables. Therefore, it does not incur any interest or affect the trucking business’s credit score. Instead, it improves the trucking business’s cash flow and liquidity by providing fast and flexible access to working capital.
How Does freight bill factoring Work?
The process of freight bill is simple. Here are the basic steps involved:
1. The trucking business delivers goods to customers and issues an invoice with 30 to 90 days or longer payment terms.
2. The business submits the invoice to the factoring company for verification and approval.
3. The factoring company performs a credit check on the customer and determines the invoice’s factoring rate and advance rate.
4. The company pays the trucking business an advance of 80–95 percent of the bill value within 24 hours of receiving the invoice.
5. The trucking business uses the advance to cover its operational costs and grow.
6. The factoring company collects the full payment from the customer on the invoice’s due date.
7. The company pays the trucking business 5% to 20% of the invoice value minus a small factoring fee.
What Are the Advantages of freight bill factoring?
Freight factoring offers many benefits for trucking businesses, such as:
- Improved cash flow: It eliminates the waiting period for payment and provides immediate cash for deliveries. It improves trucking businesses’ cash flow and liquidity and enables them to meet their expenses and obligations on time.
- Increased growth potential: The freight bill provides the ability to obtain working cash for usage intake on more loads, expand the fleet size, hire more drivers, invest in new equipment and technology, or pursue new opportunities in the market.
- Reduced credit risk: Freight factoring minimizes the credit risk for the trucking business by transferring it to the factoring company. The factoring business is in charge of obtaining payment from the customer and bears the risk of non-payment or late payment. It reduces the Possible continuation of the article: the credit exposure and bad debt losses of the trucking business allow it to focus on its core operations.
- Enhanced customer service: Freight factoring improves the customer service and relationships of the trucking business. The factoring company handles the invoice collection and payment process professionally and courteously, ensuring the customer is satisfied and loyal. The trucking business can also offer customers more flexible and favorable payment terms, such as extended credit periods or discounts for early payment, without affecting its cash flow.
- Simplified administration: Freight factoring simplifies the administration and paperwork of the trucking business. The factoring company handles invoice processing, verification, approval, collection, and payment, saving time and resources for the trucking business. The factoring company also provides online access to reports and statements, allowing the trucking business to monitor its accounts and transactions easily.
Freight factoring, or freight bill factoring, is a financing solution that helps trucking businesses overcome the cash flow challenges caused by slow-paying customers. By selling their invoices to a factoring company for immediate cash, trucking businesses can improve their cash flow, increase their growth potential, reduce their credit risk, enhance customer service, and simplify their administration. It is simply an advance on the trucking business’s receivables. It provides fast and flexible access to working capital that can help trucking businesses succeed and thrive in the transportation industry.