Factoring: An Excellent Way to Finance your Trucking Business

Factoring: An Excellent Way to Finance your Trucking Business

Accutrac Capital 24-Mar-2011 0 Comments

Perhaps the biggest source of frustration for trucking business owners is slow paying clients. Whether you're a seasoned trucking company or just getting started, slow incoming cash flow can be a thorn in your side. Slow payers not only disrupt cash flow and are unpredictable, but it can put a damper on trucking transportation expansion. 

Outstanding freight bills are often the trucker’s largest asset, which should be a good thing, right? Freight factoring receivables will allow the trucker to take advantage of this largest asset. So, what is factoring receivables and how can it help the trucker?

Trucker factoring is a method of financing whereby truckers sell their receivables and invoices to a factoring company. The factoring company pays the trucker or trucking company quickly, often within 24 hours. The receivables and invoices are turned over to the factoring company who takes care of collecting the payments from clients, including those dreaded slow paying clients. The factoring company assumes the collection risk for a nominal fee.

As any trucker or transportation company owner knows, the trucking / transportation industry is a cash hungry business. Cash flow is key in the trucking industry. Cash is needed to pay taxes, support fuel costs and pay overhead expenses. It's even more critical in times of high growth or rapid growth. With the rising costs of oil, fuel expenses can be brutal. 

There are also equipment expenses, repair costs and driver expenses to contend with. Perhaps the biggest worry though to the trucker or transportation company owner is the worry about getting paid to pay for these expenses and grow. Factoring receivables is the answer to these worries, by freeing up cash.

Keep in mind, a factoring company will perform an initial credit review of clients (including notoriously slow paying clients) and perform follow-up communications to resolve any negative occurrences. You won't have to get involved in this, which is a huge plus. Further, when using receivables financing with a factoring company, you'll still be able to see reports of your receivables management.

Factoring for truckers is a simple and straightforward process. It's also easy to qualify for -- easier than qualifying for a bank loan. In factoring receivables, the factoring company provides you with the cash for your outstanding freight bills, often within 24 hours. While the factoring company waits for payment to come in, you get immediate funding. 

The point is you get immediate funds, even for slow paying freight client. This allows you to have a more even and steady cash flow, which enables you to consistently purchase fuel and pay your truck drivers and grow your business.

Most truckers and trucking companies qualify easily since the primary qualification is that they conduct business with credit worthy clients. Even though clients may be slow paying, paying in 30 to 90 days, that doesn't mean they aren't credit worthy. What it does mean is that it eliminates the stress of having to wait to be paid.

In a practical sense, truck factoring involves you delivering your freight to its destination. You, in turn, turn over you invoice papers to the factoring company. The factoring company advances you the amount of the freight bill, less a small nominal charge. You get the money quickly, often that same day. That is basically it in a nutshell. It's that simple.

Factoring is a very common practice for cash flow, receivables financing and credit management in the trucking industry. It's simply an alternative means of financing a trucking business, other than relying on bank loans. It's easy to set up, qualify for and is cost effective. Perhaps more importantly, it'll enable you to be more successful in your trucking business by giving you a solid tool for financing expansion and growth.

To learn more about Accounts Receivables Factoring, please Contact Accutrac Capital.

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