Factoring is a method where a financial company will buy your invoices or accounts receivables for a discounted price, usually ranging from 80% to about 95%, depending on the terms of the arrangement. This company is then referred to as the factor. Keeping that in mind, if you were working with a client and agreed to be paid $100,000 after 30 days, you can factor your invoices and get $85,000 in just two days. On the date that the client pays the $100,000, it will be given to the element, earning them a handsome profit.
Whether you are an individual trucker or a freight and trucking company, it is always going to be a hassle to make ends meet. You know there are times when the job is done, but you won’t get paid until the end of the month so how are you going to pay for vehicle repairs, equipment maintenance, driver compensations, freight charges, and other maintenance fees until the client or broker can pay you? The Business Factoring or Invoice Factoring Solution You can sell your invoice for 90-95% of its value.
This means that the freight and trucking business factoring company will pay the amount in your invoice and then collect it from the freight broker on the date you were originally supposed to get paid. Looking At How It Works Here is an example to help you understand how it works. Trucking Company A acquired a contract for shipping cargo for six days, but the payment of $12,500 is at the next pay cycle, two weeks later. Of course, the company needs compensation to pay for fuel, driver salary, and maintenance fees. So instead of waiting for the payment weeks later, they can factor the invoice.
The freight factoring firm will buy the invoice’s value at a discounted price, say 90%. So now the trucking company will get at least $11,250 right away instead of having to wait two weeks. When the client pays the $12,500, it is the business factoring company that will collect the whole amount, earning a small profit in return.
Pros of this System: – You get paid right away, no need to wait for the payout. – Many factoring companies offer credit coverage, meaning if the client does not pay the invoice, they will cover the risks instead of you chasing after the customer. – Transactions are fast and straightforward. – You can qualify even with poor credit standing.
If you look at the pros, you can get everything going in one swift move. This is crucial to maintaining business cash flow. You want to be able to meet the financial demands of your company, especially for one as rigid as freight and trucking, so getting your compensation early is key to keeping things running. Otherwise, you’ll need to keep taking out loans, and this diminishes your overall returns.
Should You Consider It? If you want to ensure a steady cash flow in your trucking business, this is a viable option for you. Ensuring the stability of this type of business is crucial especially if you are just starting out. With no need for high credit standards and low risks, why not consider getting your payment as soon as possible with a freight and truck factoring today?