Whether it is a large trucking company or an independent owner-operator, getting paid for deliveries as quickly as possible is important in many ways. Not only does it ensure a continual cash flow, but also makes it easier to purchase new equipment, make repairs to trucks, and pay for fuel. However, since customers receiving deliveries are invoiced for their purchases, they often have varying amounts of time in which to make payment, usually 10-90 days. Because of this, many trucking companies and owner-operators are left waiting for these payments, many of which extend well beyond the deadline on the invoice. Rather than let this happen, more and more companies and drivers within the industry are turning to freight factoring to get their money much faster. If you are curious about this business technique, here are five fast facts to know about how freight factoring works.
Invoices are Sold
When using freight factoring to keep your business on track, one misconception is that the money gained from this process is considered a loan. In fact, the invoices are sold to freight factoring companies, which in turn provide immediate cash to a trucking company or owner-operator. In most situations, those selling the invoices receive up to 98% of the total, with the rest going to the freight factoring company as a fee.
Once an invoice is sold, collecting payment falls on the freight factoring company. As a result, truckers or companies do not need to spend time chasing down customers for payment, which can often lead to missed business opportunities. While this sounds like the freight factoring company may be taking a large risk of losing money, it is not. Since the company will only purchase invoices after checking the credit of the customer that has been invoiced, there is very little risk involved in regards to collecting payment, which makes this a win-win situation for everyone.
Your Credit Does Not Matter
While the credit ratings for customers play a pivotal role in determining if the freight factoring company will purchase an invoice, your credit rating plays no role whatsoever in the process. Therefore, even if you or your company have experienced credit issues, bankruptcies, or other financial difficulties, these will have no bearing on whether or not you can sell your invoices to a company. This can be very important to those who may need immediate cash to help a struggling business cover expenses, of which trucking companies and owner-operators have many.
Cash in 24 Hours
If you need immediate cash for your trucking business, freight factoring is a great tool to use. Once the freight factoring company approves the invoiced customer’s credit and agrees to make the purchase, you can expect to have your money in less than 24 hours in most cases. In many situations, the money can be given to you on the spot, or within several hours. Also, payment can be made immediately in person, by direct deposit, or by adding money to an existing fuel card, which can then be used immediately to purchase fuel for another run. Since fuel is often a trucker’s biggest expense, applying funds to fuel cards is a popular choice.
Easy to Qualify
Whether you are the owner of a large trucking company or an independent owner-operator with only one truck and a handful of clients, it is generally easy to qualify for freight factoring services. In fact, almost anyone working in the freight transportation industry qualifies for these services. Because of this, many smaller companies or individuals just starting out in business use freight factoring to make the early stages of their businesses much easier. By using freight factoring on a regular basis, new companies and operators can be guaranteed a steady cash flow from the beginning, which is often the biggest problem new businesses in this and other industries face when starting out.
Rather than sit back and wonder when or if you will be paid for services rendered, consider using freight factoring as a way to ease your burden. By getting money right away for your deliveries, you can focus instead on other aspects that will help your business grow and prosper in the years ahead.