If you’ve heard the term factoring before, then you’re already ahead of the game when it comes to the specific application of this to the trucking industry. It is no more complex than the same utilization of your accounts receivable in other business endeavors. Here, specifically, we’ll learn more about freight factoring to bolster your available company finances.
The Need for Freight Factoring
The need stems from the long timescales – between 30 and 90 days – involved in receiving funds from services rendered in the trucking business. You have to day-to-day operations that need to be funded immediately and continuously; by handing your accounts receivable over to a factoring company, you can get this money expediently for a relatively small factoring fee. This fee usually runs between 2-3% of the total value of your accounts receivable.
The Freight Factoring Process
Once you hire a factoring company, you send them your invoices. More often than not, they can process these and recompense you 80% of the total price the very same day. You can then use that for business purposes; in the background, the factoring company is now responsible for obtaining payment on those invoices. Once this is done several weeks later, the company will send you the remaining 20% – sans their administration fees and any others enumerated in the contract you signed. These numbers are examples of industry standards, of course; although they will vary – they won’t vary too much from the stated.
Whether or not you qualify depends on several of your business factors. These include your monthly invoice volume, the size of your customer base, the standard length of time your customers take to pay their invoices, and the percentage of the accounts receivable necessary to maintain business operations. The latter, in particular, determines the factoring company’s level of risk. It’s a competitive endeavor, so you’ll likely be able to find what you need to maintain and further your trucking business by using freight factoring.