How Invoice Factoring Can Help Your Trucking BusinessMar 18, 2015 / Posted in Tell It Like It Is
Anyone who moves freight, sometimes has slow paying customers. When those types of customers begin to comprise most of your business, cash-flow problems can begin to put a strain on your operations and stunt your growth.
What is Invoice Factoring?
Invoice factoring is a type of accounts receivable financing that finances your open invoices from creditworthy customers who are slow payers. It provides short-term capital in exchange for selling your invoices to a factor.
Typically, you receive money in two installments. The first installment is paid when you submit proof that your invoice has been submitted to your customer. This amount can range from 80 percent to 95 percent of the billed invoice. The second installment arrives after the customer has paid the invoice in full, giving you the remainder of your money, minus the factoring fees. These fees usually range from 1.5 percent to 3.5 percent per month, depending on the size of the advance and the creditworthiness of your customers.
Benefits Factoring has a number of advantages over other forms of financing. These include:
- Improves cash flow, ensuring that you have money on hand for important business expenses
- Allows you to extend net-30 terms to customers worry free
- Easier to obtain than business loans with a simple application process
- Can be deployed within a matter of days
- Credit line grows with your business
- Minimizes bad debt
Choosing the Right Factoring Company
Getting appropriate financing can be a boon for your trucking business. Select a factoring company that will be a good fit for your operations and will help you achieve your goals. When assessing factoring companies, ask the following questions:
- How long have they been in business?
- Do they have experience in the trucking industry?
- Are they well-funded?
- What is their response time?
Invoice factoring is right for you if your customers have good credit and you have good profit margins. As with any other type of financing, do your best to negotiate good rates and percentages for advances and all associated fees.
For more help on running your trucking business, contact Pay4Freight.