While from what I read and hear, it seems like there’s some improvement in the economic climate, there’re still company’s out there that are struggling with one thing……..cash flow.
If I’ve said once………… I’ve said it a hundred times………………. CASH IS KING!
Regardless of the industry there’s one point a successful business owner always comes back to and that is the company’s cash flow and good budgeting.
Of course we all know the source of your cash flow and that is collections from your customer base.
I know collecting your receivables can be easier said than done. It can take customers upwards to 30, 60, and even 90 days. Yes…this even happens in the trucking industry.
In my tenure…………………
In my tenure in the commercial finance industry…….I’ve seen how factoring can really help any industry. This includes the trucking industry.
For those of you that don’t know what factoring is, factoring is simply selling your credit worthy receivables to a third party known as a factoring company.
Advance rates vary but are typically around 80%. The remaining portion is reserved until the invoice paid. Once the invoice is paid, you get the reserved portion back less applicable fees.
This is great because….. it’s not a bank loan. You’re not really creating any debt. The other thing too is if you get a bank loan to finance receivables, you could prevent your company from purchasing other equipment and even trucks.
How this works for freight companies…………..
With freight factoring……….. truckers can get paid immediately for what they did whether or not the shipper they work for pays on time.
By selling your invoices, you can alleviate your cash flow constraints because you’re getting the cash in your hands needed to take care of your daily needs:
- Payroll
- Fuel
- Other overhead
I think we all know how hard it can be at times to just keep up with ordinary expenses because your customers leave you hanging.
Something else to consider too is that, by factoring you can help your freight business grow.
That’s right…….business development costs money as well. You need the extra personnel, marketing, office space, additional overhead.
You need good solid cash flow to make all of this a reality. Where does that cash flow come from? That’s right…… your operating cycle…….generating revenue……..and collecting your receivables.
Factoring Finance Strategies that work…………….
While we are discussing freight factoring…… I thought I would pass along a few hints and tips that could help you in the whole factoring process. These strategies can also be somewhat cost effective as well.
- The first (and most simplistic) is factor all of your receivables. Sure this can cost a little bit, but it is a small price to pay to have the cash on hand necessary to conduct your day to day operations (make payroll, pay vendors, etc.).
- Second, are you a business owner that offers quick pay discounts? If the answer is yes, then you may want to either stop offering quick pay discounts or minimize them. If you’re factoring your receivables, then you’re getting the cash you need. I make this recommendation just because I have seen customers take the discount even if they are not paying in the required time frame, particularly in the freight forwarding industry.
- Third, you may find there are just certain times that you need a little help with your cash flow. You may only want to factor some of your receivables. Look at factoring your more credit worthy customers only. There may be a chance the more credit worthy customer pay faster. That’s fine, because In the long run you are minimizing your factoring charges while meeting your cash needs.
Final thought……………….
I really hope this discussion helps you in deciding if you are trying to determine whether or not your company is going to utilize a factoring program. It really will help your business grow. Good luck!