It is well known within the trucking business that the ability to control cash flow can totally make or break the business, no matter the size of the trucking company we’re talking about. With this current picture, there is one particular solution that comes as a great option for small trucking businesses, surpassing going to the banks, or request a line of credit: truck factoring.
This basically consists on receiving almost all of the money that you invoice to your client as soon as you deliver the load. Trucking factoring companies finance your open freight bills and provide you with funding, working as a stable financial platform for your business to grow.
But how is it that transportation factoring companies work? Well, summarizing, these would be the step by step, more or less:
- When you have a load booked, you have to send the application to the trucking factoring company. All the available information about your client is mostly needed, since the truck factoring company needs to know if the client is likely to pay at the end. It is completely obvious that this information is very important to them, because basically their own business depends on that. While sending the application, you will also need to provide information about the load that you are delivering, and your rate confirmation.
- After your application, you will need to wait for the trucking factoring company’s response on whether your application was approved or not. As stated above, an analysis on the customer’s likeliness to pay and creditworthiness is the main factor for getting your application approved or rejected.
- You pull the load.
- Once the load has departed, you have to mail or fax your bills of lading and every document related to the load to the factoring company.
- You will now receive the advance payment from the trucking factoring company. This can take up to 48 hours depending on the method you’ve both arranged for payments (wire transfer, check, etc.). The advance payment usually consists of 90% of the total invoice. If your customer ends up paying the invoice, as expected, then you will receive the remaining 10% (minus the fee). If the customer does not pay, you will not receive this remaining payment, which is called rebate.
- After your client pays the invoice, you will receive the balance.
Trucking factoring companies’ services is a great way to get the cash that you need to keep going and provide certain stability to your on-going business and not depend so much on your customer’s payment times, which sometimes take 30 or even 60 days!
Obviously, the best option for you would be to invoice your customer and then wait for him to pay, but as we have stated above, if you’ve been in the trucking business for some time now you may now that this usually doesn’t work as smoothly as it sounds. Most clients take their time to pay their invoices: sometimes 30 days, sometimes 60 days. So if you need the cash immediately in order to pay for other things that are needed for keeping the business running, such as truck maintenance or paying the drivers, trucking factoring companies can become your best ally.
Trucking factoring is, of course, not free. Factoring for Trucking companies will always charge you a fee, which is a percentage of the entire amount that they fund you. This percentage differs a lot from one trucking factoring company to another: it can go from as little as 1.5% to as much as 5% depending on the company you are dealing with.
Factoring is much simpler than most people tend to think, and it can bring immense benefits to your business: you will be able to get the money you need for keeping your business running and at the time that you need that money to pay for other things you need, instead of that long wait that usually occurs until the customer pays its invoice, which sometimes is even up to 60 days.
Knowing how most logistics and distribution companies operate and the urgency they tend to deal with, trucking factoring companies are usually very helpful for your business.
When it comes to deciding which one of the trucking factoring companies is the best for your situation, you need to take into account that there are several different companies offering these services, each one with its own conditions. Remember to check their fees, since they can go from 1.5% to 5% approximately, making a big difference. As said before, always remember to ask if they do recourse-based or non-recourse-based agreements, especially if you are not 100% sure that your customer will pay your invoices. Carter Founding Corporation is one of the best options out there for you: it offers great flexible and quick logistic and distribution factoring solutions for you. Following your application, Carter Founding Corporation processes, verifies and approves the request in only 24 hours, and provides the fund within 3 business days.