Running a trucking business has distinct challenges that aren’t always faced by other companies. They need access to cash fast to keep them on the road. You can’t wait weeks to get paid by your customers, you need to be able to buy fuel now. That’s why factoring services work well for the trucking industry.
How It Works
Factoring services are popular across many industries, and all function relatively similarly. A factoring service purchases your accounts receivable once you have made your delivery, sending you cash without you waiting to get paid. They give you a significant portion of the value of the account up front—usually 90% or greater. Once the invoice is due for payment they then begin the collections process with that account so you don’t have to. Trucking factoring companies often take the credit risk on any account they buy, so if the customer doesn’t pay because they can’t, it’s not your problem!
Because cash flow can be unpredictable, factoring services are there to help curb that variable. When companies are first starting out, steady cash flow is crucial. Cash flow can make or break a trucking company. Using a factoring service will provide you with a significant amount of that cash flow quickly, so you can stay on the road. If you were to go weeks or even months without payment, you would not be able to operate. Without a predicable revenue stream coming in, a freight company can’t carry out its usual business. Factoring services help prevent that issue.
Additionally, with a factoring service managing your accounts receivable, it leaves you more time to do what you need to do, drive. By not having to actively pursue payments, your time and energy can be focused elsewhere, significantly improving your business’s ability to generate more revenue.
When to Use
It’s very common for new trucking businesses to seek out factoring services, specifically to have consistent cash flow during the first few months. Using a factoring service is significantly different than taking out loans. Not only are loans hard to find, you have to pay them back, and the interest rates may be high. By taking out loans, you’re also increasing your liabilities, throwing off the balance and profitability of your organization.
With factoring services, your account is being purchased by the factoring company at a slight discount. The factoring service doesn’t require you to pay for manpower or labor hours, either. They simply take a small portion of the invoice amount. You may also benefit from other perks such as fuel and tire discounts and free access to a load board as part of the service. As such, factoring services can keep a young company from taking out an unnecessary amount of debt, which could ultimately catch up with them and cause financial struggles.
Because the trucking industry is centered around payments being received, the cash flow can cause problems. That’s why if you’re in an industry with fluctuating cash flow, seeking out factoring services in Norcross can significantly improve your business.