If you own a trucking or transportation company, you’ve likely heard of transportation factoring, the process of selling accounts receivable in the form of unpaid invoices to a factoring company rather than waiting months to get paid. The trucking industry in particular is fraught with hurdles that impede cash flow such as vehicle depreciation, driver shortages, and more. This is why businesses of any size can greatly benefit from transportation factoring especially when it comes to maintaining enough working capital to keep their fleets moving.
Transportation factoring has been around for decades, but only recently has it been adopted as a mainstream financial strategy. Here’s how it works: a business owner decides that they want to speed up payment on an invoice from a slow paying customer, and so rather than sending those invoices directly to their customer, they sell them at a discount upfront to a factoring company, who then collects the invoice from the customer on the carrier’s behalf. Transportation factoring companies will offer 90 to 95% or even 97% of the value of the invoice upfront minus a small factoring fee. They will keep the remaining 3% in reserve and remit it back to the carrier once the original invoice is paid.
Having cash in hand today rather than waiting 30 to 60 to even 90 days helps carriers with cash flow and gives them the ability to pay insurance premiums, manage payroll, purchase fuel, and take care of other overhead costs. Additionally, when a carrier pays their bills on time, they are able to better manage their income and expenditure without accruing debt.
Of course, different factoring companies offer different plans, and vetting potential partners is a crucial element of due diligence. Here are some things to consider before partnering with a factoring company.
The Right Plan For Your Business
Transparent plans– such as those available from Accutrac Capital – help carriers that need immediate cash. Flat fee factoring is one such plan and costs only a nominal percentage of the invoice value and starts as low as 1.59%. Flexible factoring is also an appealing plan – especially for carriers who have quick-paying customers. This plan starts at a rate of 0.49% for up to 10 days. A factoring line of credit, on the other hand, is the preferred tool for fast-growing,larger enterprises and starts at 0.022% per day.
Customer Service Is Key
Having a factoring company handle your billing and collection is extremely convenient and frees up your time is an owner to focus on what you do best — tracking down leads for new contracts and growing your business. Be sure to look for a factoring company that prides itself on providing winning customer service. The right factoring company will want to help you maintain positive business relationships, as that guarantees you more contracts, and thus more invoices to factor if you need upfront cash down the road.
Another important element to consider is the company’s overall reputation with previous clients, how available they are to carriers when they need questions answered, and whether carriers have 24/7 account access.
Hopefully this article will help you parse and vet a factoring partner as you enter the world of transportation factoring. The right factoring partner will give you better access to working capital which in turn will help you keep your trucks on the road.