Benefits of Utilizing Freight Factoring for Small Business

For most small business owners – and owner-operators especially – perhaps the most significant hurdle is determining how to fund your company and increase cash flow. Too frequently, trucking firms experience trouble getting clients to pay their bills in a timely manner, which can contribute to serious financial woes in paying their current costs.

This is where freight factoring, also referred to as invoice factoring, can provide a huge benefit for trucking firms and others. The benefits of factoring freight invoices are undeniable and can go a long way in helping your business become more sustainable in the long run.

What Is Freight Factoring?

Freight factoring is when you sell your unbilled invoices to a third-party factoring company. They advance a cash advance which is usually 80-90% of your unbilled invoice amount. Freight factoring does advance more than regular invoice factoring – frequently up to 99% of the invoice value.

Benefits of Freight Factoring

There are many freight factoring benefits that can directly impact your trucking company in operation and growth. The following are some of the greatest freight factoring benefits you need to know when considering your own financing needs.

Quick Approval

It can take a very long time to get approved for a traditional loan to fund your business activities. The lenders will have to verify your credit record, available collateral, and the financial status of your business before they can approve you for a loan.

Freight factoring for small companies, however, to qualify for a cash advance is relatively easier. The factoring company simply verifies the creditworthiness of your customers whose invoices you will be selling.

Improves Cash Flow

The most obvious benefit of invoice factoring is the reality that it has the potential to greatly improve your cash flow. By obtaining a cash advance against your invoices, you'll have immediate access to funds that will allow you to cover normal owner-operator costs like trucking insurance, fuel, truck payments, repairs and maintenance, business taxes, and so on.

By having a positive cash flow, you will be in the position of having the funds that you need to sustain your trucking business, rather than waiting for a payment to come due and letting an invoice sit and become full.

Faster Access to Cash Than Quick Pay 

And just as quick pay also implies that carriers receive payment sooner than their customary invoice terms, brokers' payment periods and fee structures may vary widely. And since brokers only offer quick pay on their loads, it would mean that your opportunity to receive money promptly will vary with the broker and load.

At the same time, freight factoring services lend you the cash you need in one to two days. You can factor against any broker or customer invoice, so you will always have quick access to capital.

Reduces Accounting Work

Another reason trucking companies use freight factoring is to reduce their accounting and back-office work. You've got enough to handle as it is with getting shipments delivered and finding loads. By selling outstanding invoices to a freight factoring company, they will do most of the accounting work such as processing payment on invoices and pursuing customers to pay. This will give you more time to focus on other activities that will make your business grow.

Conclusion

Although trucking business owners have numerous funding options, freight factoring's advantages are not to be missed. Freight factoring is an easy process offering a cash advance on your unpaid invoices with a small fee deducted from your payment amount.

Freight factoring offers carriers a simple means to gain the funds they need instantly, whether a start-up business or they have low credit. Furthermore, freight factoring also eliminates much of the administrative burden of operating in the trucking business, as the factoring agency will be handling outstanding payment collection on invoices.