If you own a trucking company and you’re looking to make 2018 the year where you mitigate the obstacles of overdue invoices and turn them into immediate cash, then you should consider invoice factoring. Invoice factoring has become a mainstream financial strategy across many industries, from retail to IT to trucking and transportation.
One of the benefits of factoring is that you can often find a partner who specializes in your specific industry and can, therefore, help you find a plan that works for your individual company’s needs. Once you find the right partner, cash flow solutions will quickly be within reach.
The qualification requirements for invoice factoring, also known as accounts receivable financing, are straightforward and easy to understand. As the owner of a trucking company, if your customers are creditworthy then you will qualify quickly and easily for freight bill factoring (an industry-specific form of invoice factoring).
Your company must:
- Be a carrier or a freight broker
- Work with commercial clients who are themselves credit worthy and solvent
- Produce lien-free freight bills
- Produce proper documentation, especially licenses and authorities that are up to date
If your day-to-day trucking operations suffer due to outstanding invoices, but you can’t qualify for traditional bank loans or lines of credit, and you need cash quickly, invoice factoring it is definitely a financial option that you need to consider.
To learn how truck drivers can get paid faster and how factoring enters the equation, it pays to remember that all trucking company owners are different and look for different features when they seek out AR financing. Here are some of the criteria that trucking owners use to decide which factoring company to work with.
Cost will always be a factor when any business owner considers financing. If the cost of factoring invoices is more than the savings you gain through the process, you will improve cash flow management but sometimes at the expense of your bottom line. However, if you find a factoring partner that can keep fees under 3%, and also offer discount fuel programs, free tools to evaluate the creditworthiness of your customers, as well as improved AR management, you gain a huge financial advantage through the factoring process itself.
When you work with a financial partner that you can trust, your mind is put at ease. Working with a factoring company that understands your business and the trucking industry at large while offering up a sense of transparency and urgency will solidify your working partnership. The right factoring partner is not simply buying your outstanding invoices; they also help your fleet stay on the move during challenging moments.
Recourse vs. Nonrecourse
A final consideration is whether to use recourse or nonrecourse factoring. With nonrecourse factoring, your trucking company will be protected in case of failed payment on the part of a customer due to insolvency. In this case, the factoring company will be responsible for the cost of the invoice and will not seek a return of the advance.
However, very few factoring companies will purchase invoices from unstable companies, negating the apparent advantage of nonrecourse. Recourse factoring costs less overall, and carries fewer credit restrictions and so more often than not recourse factoring tends to be the better play.
Factoring company back offices are trained and proficient in the collection of freight bills reducing the occurrence of unpaid invoices by a considerable degree compared to in-house trucking company AR departments.
If you own a freight, transportation, or courier company and you want to make it through 2018 without encountering major cash flow issues, freight factoring might well be the solution for you. Remember to look for transparency, and industry speciality when you choose the factoring partner to work with. Consider all of the above, and you will be well on your way to improve the bottom lines this coming year.