When it comes to securing financing in the trucking industry, carriers face an uphill climb. Traditional commercial banking systems are by nature risk-averse, and they will often resist lending money to a trucking company. Banks need to be satisfied that enterprises can manage debt payment, sustain operations, and are not likely to become a credit risk.
This means that small to midsize carriers in the trucking industry sometimes lack the solid credit history or strong collateral to assuage the financial institution’s concerns. When trucking and transportation companies cannot meet the stringent qualification requirements and therefore cannot secure a line of credit or a loan from a major lending institution, they must look for financing elsewhere.
Freight factoring — also known as transportation factoring — is a particular type of financing that many businesses in the trucking industry use to access funds that are normally tied up in accounts receivable. Transportation factoring allows a company to sell its accounts receivable in the form of its unpaid invoices to the factoring company at a discount. Many trucking companies use freight factoring services because it means that instead of waiting 1 to 2 to 3 months for customer payment, companies receive immediate funding minus a small factoring fee, which means the factoring company takes over the invoice and handles collection.
Because trucking is an industry that comes with a unique set of hurdles, it pays to partner with a factoring company that understands the industry and specializes in factoring trucking and transportation invoices. An industry specific factor, such as Accutrac Capital, can help you meet the fiscal challenges you face every day because they know how your business works and they understand the daily operational challenges you deal with. Here’s a basic breakdown of the process:
- You deliver your freight to one of your customers as per usual
- You invoice that customer and a copy of the invoice is sent to your factoring company as well as all supporting documentation
- The factoring company gives you an advance of up to 97% (minus a small factoring fee and with the remaining 3% held in reserve) within 24 hours
- When the factoring company collects on the invoice, they reimburse you the remaining 3%
Few trucking companies can afford to wait three months for payment on an outstanding invoice. This is why so many trucking companies incorporate invoice factoring into their overall financial strategy. If you run a trucking or transportation company of any size, you realize how important it is to have cash on hand to cover daily operational costs and overhead.
Any expert will tell you that cash flow is directly tied to your invoices, and factoring allows you to turn those invoices into immediate funding for your business. This allows you to concentrate directly on your business, be it sales and marketing, new accounts, or purchasing new equipment.
If you are looking for better access to working capital, consider transportation factoring to help you maintain a healthy cash flow. If your customers have excellent credit but are typically slow in paying their invoices — or if traditional lenders are not an option for your enterprise — this type of factoring might be just what you’re looking for.