Freight Factoring: No Application Fees
Regardless of the industry………we know there’s one thing a company needs to have to survive………….cash!
Always remember one very important, but over used phrase. Cash is king!
You need the cash to be able to:
- Pay your vendors
- Pay your employees
- Business development
Of course we all know where the cash comes from…….converting your accounts receivables into cash.
This is regardless of the industry you’re in……manufacturing, distribution, freight forwarding…….
During my time in the commercial finance industry (6 years to be exact)…….I’ve witnessed how factoring can really help enhance cash flow in any industry. This includes the trucking and freight forwarding industry.
Keep in mind there are all sorts of factoring companies out there. There are even some that specialize in freight factoring.
If you don’t know what factoring is, factoring is simply selling your credit worthy accounts receivables to a third party known as a factoring company.
Advance rates can 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.
It’s great because it’s not a traditional 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.
Essentially, factoring helps bridge the gap between when an invoice is billed and the cash is collected. It’s great when it takes your customers up to 30, 60 and even 90 days to pay invoices.
How this works for freight companies…………..
With freight factoring……….. Your truckers can get paid immediately whether or not the shipper they work for pays on time.
By factoring 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:
- Other overhead
I think we all understand how difficult it can be sometimes to just keep up with ordinary expenses because your customers take so long to pay.
Something else to consider too is that, by factoring you can help your freight business grow.
Business development costs money as well. You need the extra personnel, marketing, office space, additional overhead.
You need solid cash flow to make all of this happen. Where does that cash flow come from? That’s right…… your operating cycle…….generating revenue……..and collecting your receivables.
Factoring Finance Strategies…………….
While we are discussing freight factoring……I thought I would pass along a few 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 get your hands on the cash you need to conduct your day to day operations (make payroll, pay vendors, etc.).
- Second, are if you are a business owner that offers quick pay discounts, 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 and thus enhancing your cash flow. 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.
I sincerely hope this discussion helps you in deciding if you are going to invest in a factoring facility. It really will help your business grow. Best of luck!