How to Get the Funding Your Business Needs Through Truck Factoring
When it comes to running a business, one of the hardest parts is often raising the capital required to pay for the operational costs. This is no different when it comes to freight hauling.
Owning and managing a transportation company is tedious work, requiring one to juggle different aspects of the trade such as management, accounting, resource management, and marketing. There are also the ‘hidden’ costs such as fueling, maintaining, and repairing vehicles to keep them in good working order so they can keep delivering loads.
With so many responsibilities as an owner, it is easy to lose track of cash flow. Freight factoring can help you streamline your funding. Instead of spending long periods of valuable time waiting for clients or invoices to be paid in full, you get paid immediately and can then use the capital to either improve your business or find new loads to transport.
What is Truck Factoring?
If you are in the transportation business, you have probably come across the terms ‘truck factoring’ before. But what exactly does it entail?
Factoring occurs when a carrier sells the invoice for a load they have delivered to a factoring company so that they can get cash immediately. It is a financial service that has the potential to benefit both owners and operators by allowing them to pay for expenses and grow their business.
The factoring company then generates cash for each invoice while taking a percentage of that invoice as a fee. The seller receives anywhere between 95% to 97% of the invoice, with the remaining percentage being claimed by the factoring company as their fee.
So instead of waiting 30, 60, or even 90 business days to receive payment on goods, you have hauled, you can generate the cash immediately using factoring companies.
Truck factoring will afford you to cover operational costs such as truck maintenance, repairs, fuel, and staff wages. This is an excellent way to maximize cash flow in an industry where you often do not get paid until long after the service has been delivered.
We can all agree that clients who are slow to make payments prevent owners and operators from financing their business and growing it to its full potential. But with factoring, you have immediate access to funds that enable you to run the company.
Types of Factoring Transactions
There are two types of factoring transactions. Here is a glimpse into both of them and how you can use each for your business.
Single Installment Transactions
These types of transactions are commonly used and are popular especially with newer or smaller freight haulers. They are called single installment transactions because the factoring company gives you a single payment after you sell them the invoice.
This single payment is referred to as a ‘full advance’ and it is offered at a flat-rate fee. The fee is usually the percentage of the invoice that is not advanced by the factoring company. For example, if the fee is 5%, this means that the advance was 95%. Immediately after the invoice has been factored by the company you will receive a deposit of the advance in your bank account.
Single installment transactions are costlier, however, they offer much larger amounts of cash right away.
Two Installment Transactions
As the name suggests, two installment transactions split your cash advances into two separate payments. The first installment or advance will cover a certain percentage of the invoice you sell to the factoring company.
The funds are deposited into your bank account or fueling card within one business day of submitting the invoice. The balance minus the factoring company’s fee is deposited into your account once the client completes the payment of the invoice in full.
These transactions are commonly used by large and midsize freight haulers and have lower costs when compared to single-installment transactions.
How Factoring Benefits Your Business
Factoring comes with a number of advantages. Here is a look at some of them.
It Is a Means of Funding
Improved cash flow means you can pay for operational costs of your business such as fuel, maintenance, and wages.
For example, if your truck drivers have just hauled a load and they don’t have enough fuel to get back, you can sell the invoice from their delivery to a factoring company such as ezinvoicefactoring.com. This will generate cash which you can use to pay the wages for their deliveries as well as fuel their trucks for the return trip.
This is far more convenient than having to wait for months to get paid by the client or broker to cover expenses racked up by your business. You won’t lack funds to run your business, which means you won’t have to turn clients away because you can’t fulfill their orders.
Open to Smaller and Newer Businesses
Unlike loans, which banks are often reluctant to give to smaller, newer enterprises, factoring is easily accessible even to the smallest of players. In fact, as soon as you haul your first load, a factoring company will be ready to buy your invoice, provided your client or broker is creditworthy of course.
This makes it a vital tool for those who are just starting out in the trucking business, as well as those who are looking to expand their operations. It is relatively easy to get factoring lines compared to other services. A majority of companies that apply for it usually have a good chance of getting it.
Approvals are Swift
A majority of factoring requests are approved very quickly, typically within a day of the application being made. However, it should be noted that applications for larger freight hauling companies may take a bit longer. Still, it only takes a couple of days which is much better than other business lending services that can take several months to be approved.
Access to Advances on Fuel
This is particularly helpful for smaller or newer trucking companies who struggle to raise funds for fuel, as well as companies that are expanding at a greater rate than their current cash reserves can accommodate.
How to Get Funding Through Truck Factoring
Here are a few steps you could use to get funda cash advance through truck factoring.
1. Submit an Application
The first step is submitting a factoring application with your business requirements. Upon approval of your application, the factoring company will issue you with the relevant information regarding the specifics of your contract agreement. Submission of a factoring application is a speedy process that can be completed in just one day.
2. Send the Invoices
After approval of your application, the next step is to submit your invoices. Select those that you will factor and the rate at which they will be factored. The factoring company will verify them, primarily by checking to make sure that your customers are credit-worthy.
Once your submissions are verified you will receive a cash advance on the same day or within 24 hours.
3. Focus on Your Company
At this point in the process, you are free to focus your energies on your business. Use the increased cash flow to cover operational costs such as expanding the business, hiring new employees, and investing in marketing to help your business grow. The factoring company will then collect the invoice amount from your client(s).
4. Collect the Balance
When the invoice total is paid in full by your client(s), the factoring company will deposit the balance in your account, minus the percentage agreed upon as a fee for their services.
Cost of Using Factoring Services
Most trucking companies can get a factoring rate of anywhere between 1-4%. These rates will vary based on the creditworthiness of your invoices as well as the volume of the invoices.
Advances from factoring companies are not fixed. They can be negotiated based on the requirements of your business, so you should always aim for an advance that is commensurate to your specific needs.
Having said that, initial advances usually range from 90-98.5% of your invoice. Naturally, the higher an advance, the higher the costs, and vice-versa. Factoring programs are available both with and without recourse.
In these types of transactions, the factoring company can return the invoice to the seller for reimbursement if it is not paid within a 90-day period.
With non-recourse factoring, the factoring company absorbs the loss in the event that your invoices do not pay due to insolvency by your customer. Non-recourse transactions only cover customer insolvencies and no other external factors.
For example, if your shipper fails to pay because of a dispute, you will still have to reimburse the factoring company for the advance they gave you on your invoice. AS such, non-recourse plans have a significantly higher cost in order to compensate the factoring company for the extra risk.
It is important to remember that neither transaction is necessarily superior to the other. Regardless of recourse, factoring companies will not finance invoices if they deem the shippers to be questionable.
Succeed and Grow Your Company with ezinvoicefactoring.com
The days of relying on credit cards and bank loans to keep businesses afloat are slowly dying. These methods are only effective when you are making more than you spend on your balance sheet. In an industry where payments are almost never made immediately, you can’t afford to wait for months on end to receive returns on your investments.
Visit ezinvoicefactoring.com to generate cash immediately so you can grow and expand your business today.