Freight Factoring Companies: What You Should Know!

Posted by John Mauldin on Tue, Oct 29, 2013

Freight Factoring Companies

Freight Factoring Companies:  What You Should Know!

I don’t know how many times I can reiterate this………….cash is king!

This simple three word phrase sure is overused, but it is vital in successfully running a business, regardless of your industry.

I think we all know where this cash comes from…………..efficiently converting your accounts receivables into cash.

At the end of the day, we all know that efficiently collecting your receivables is like trying to efficiently go from point A to point B with a two year old. It just doesn’t happen.

I’m sure you already know this, but it can seriously take 30, 60, or even 90 days to collect your receivables.  We all know you can’t efficiently run a business with this kind of turnover.

During my time in the commercial finance industry…………………

During my time in the commercial finance industry…….I’ve seen how factoring can really help any industry.  This includes the trucking/freight forwarding industry.

If you’re wondering what factoring is, I’ll solve that mystery. Factoring is 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. 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.  Yes….that’s right trucks.  This is a great way to get your hands on the cash you need especially if you are a trucking company or freight forwarder. There are even freight factoring companies.

Freight Companies…………..

Working with freight factoring companies………..truckers can get their hands on the cash they need immediately for the work they did whether or not the shipping company 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:

  • Fuel
  • Payroll
  • Other overhead

It can be hard at times to just keep up with ordinary expenses because your customers leave you hanging.

In addition, by factoring you can help your freight business grow.

That’s right…….business development can cost a little bit as well. You need the extra personnel, marketing, office space, additional overhead.

Your company needs positive cash flow to make 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…………….

While we are discussing freight factoring and working with freight factoring companies…… I thought I would pass along a few tips that could help you in the factoring process. These strategies can also be somewhat cost effective as well.

  • The first is, factor all of your receivables. Sure this may come at a cost,  but it is a small price to pay to have the cash on hand necessary to conduct your daily business without breaking a sweat about what bills are going to be paid.
  • Second, if your company offers quick pay discounts, then you may want to either stop offering quick pay discounts or minimize them. 

Factoring receivables gets you 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’s a good 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 sincerely hope this discussion gives you perspective and insight into factoring especially in the freight forwarding and trucking industry. It really will help your business grow.  Good luck!

Fast A/R Funding specializes in freight factoring. Download our informative “Cash Flow Financing FAQS” guide, or call 888.833.2286 to speak with one of our small business finance consultants.

 Cash Flow Financing FAQs

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Tags: Accounts Receivables Financing, Transportation Factoring, Freight Factoring