Why Your Trucking Company Does Not Need To Be In Financial Difficulty to Need Factoring

Why Your Trucking Company Does Not Need To Be In Financial Difficulty to Need Factoring

Accutrac Capital 21-Jun-2013 0 Comments

It's true; invoice factoring (also known as invoice discounting) is an excellent alternative financing solution if your trucking business can't get financing from traditional sources. However, it's a myth that only companies in financial crisis turn to factoring to find financing.

Invoice Factoring isn't just for trucking and transportation companies that are experiencing financial trouble or with poor credit ratings.

Here are some examples why successful trucking companies will turn to factoring:

  • Trucking companies operating in high risk sectors: Often a successful transportation company will be operating in a business sector that makes traditional lenders nervous. For example, when the bottom fell out of the auto industry, trucking companies with a high percentage of customers in the automotive sector suddenly found banks unwilling to extend them credit. And, these were companies with strong financials. Many of these trucking businesses turned to factoring their accounts receivable and freight invoices to keep their cash flow healthy.

  • Startup trucking businesses: Startup trucking businesses often turn to invoice factoring because they have yet to build a credit history in order to qualify for traditional financing. Since qualifying for factoring is based on the creditworthiness of their customers, a new trucking company without any financial history can qualify for accounts receivable factoring.

  • High growth trucking companies: Trucking businesses going through a period of high growth will often turn to freight factoring to fund that growth. It's a paradox that the faster you grow, and the more successful your trucking company is, the harder it can be to obtain traditional financing. That's because traditional lenders focus on past performance. Like startup companies, high growth trucking companies simply don't have the financial history to meet a traditional lender's stringent requirements. However, because factoring involves selling your freight bills to a factoring company at a discount in exchange for immediate cash, your ability to factor grows with your trucking business. The more invoices you issue, the more funding you qualify to obtain.

  • Trucking businesses going through a transition: Whether it's a change in ownership, a move to a new facility or restructuring to create inefficiencies, trucking businesses going through a transition can find it tough to obtain traditional financing. Why? Banks don't like risk, and change translates to risk. Many successful trucking businesses going through a transition will turn to invoice factoring to help finance that transition.

  • Trucking companies that want to minimize debt and maintain equity: Some trucking and freight companies simply don't want to take on additional debt or give away their equity when there's a short-term need for cash. That's especially true when they're working on keeping their credit scores high to minimize interest rates for long-term financing. Invoice Factoring provides an ideal solution because it's not a business loan and doesn't show up on the company's balance sheet as debt.

For more information about factoring to create cash flow for your trucking and freight business, visit www.accutraccapital.com.

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