Invoice factoring allows you to use the business invoices to get access to funds in no time. When you use invoices from creditworthy clients, you can get access to funds within two days. The funds can be used as working capital in the business or to make the payment of short term liabilities.
There are different types of factoring that can be used in the business and it is important to understand the same. One form of factoring is known as trucking factoring or freight factoring which allows the trucking companies as well as the owner and operators to use the unpaid invoices to get access to funds. This is very common for a trucking company to use this form of factoring to meet the gap in the cash flow while the shippers or the freight brokers make their payment. In case of freight factoring, you can get funding within one working day.
What is fright factoring?
Freight bill factoring is an option which can help monetize the outstanding invoices by getting you paid immediately against the same. It is an accounts receivable financing option where you get paid about 80% of the value of the outstanding invoice immediately and the remaining 20% will be paid to you when the invoice is cleared and after the deduction of the fees. It works well for the small business owner as well as the operators who are looking for immediate access to cash. It is also used by larger trucking businesses who want to fill the cash flow gap in the business. The qualification criteria is very simple. The borrower only needs to have creditworthy invoices which can be used for factoring. Those borrowers who have a bad credit might find this as an ideal borrowing option. Even if you are not a prime borrower, you can use factoring to get access to the funds. It is alright if you have a bad credit score but you can still have access to funds through factoring.
There will be different terms of freight factoring based on the amount of funds you need. A larger company with a high sales amount will be able to achieve a higher amount of funds in a month based on their invoice volume. For a smaller business, the amount of factoring will be quite low depending on the freight invoices.
Who is it right for?
This type of factoring is ideal for trucking companies of all sizes who want to use their account receivables to get paid immediately. It can help cover the gap in cash flow and also help maintain the working capital requirements. Based on the size of the business, the factoring will benefit in more than one way. Qualifying for factoring is much easier as compared to qualifying for a traditional loan. The most common hurdles that you come across in the traditional form of borrowing are not present here which makes the entire process hassle free and convenient. The factoring company will only look at the creditworthiness of the customers over yours and based on the amount you need, they company will look at the invoices you present them. Another advantage of factoring is a clean balance sheet. You can have the funds at your disposal without creating a liability in the balance sheet. Invoice receivable is an asset and you are raising funds against the same. You need to use invoices which are due in the next 90 days and might have to show a business history of three to six months.
Cost of freight factoring
The basic cost of factoring for operators will depend on how long it takes the customers to make the payment of the outstanding amount on the invoice. This is because the charges will be per week or per month of invoice amount outstanding. The fees range anywhere between 2% to 5% each month. In case of larger companies, there are chances that a flat fee will be charged per invoice instead of paying a fee each week or month. Even if you consider the fees of factoring, you will notice that it is much cheaper than applying for a loan with a traditional lender. Even if you borrow money from friends, you will end up paying an interest amount which will be higher than the fees charged by a factoring company.
There is no denying the fact that factoring is crucial for every type of business and has a number of benefits for the growth of the business.