By effectively managing your accounts receivable, you can ensure the timely collection of payments and keep your business financially sound.
CALIFORNIA, UNITED STATES | NOW THEN DIGITAL — Starting up a new trucking company means you’re about to have a ton of expenses, just like any other small business. As all those details come together and your assets deplete, you’re going to be stuck waiting until your customers pay for their shipments.
Few of them will ever pay you immediately. In fact, you’ll likely be waiting 30 to 60 days to receive payments. Then you’re left in the lurch to pay the bills for your company, often late and incurring extra fees that further take money away from your profits.
That’s why you should consider factoring, a tool that many small businesses use to keep afloat and secure their future down the road.
What Is Factoring?
As a small business owner, you need to stay on top of your accounts receivable to have a healthy cash flow. But reviewing these receivables and trying to collect them can take up a lot of your time. You really want to get the cash you’re owed as quickly as possible, which is where factoring comes into the picture.
With this process, you assign your invoices to a factoring company. This company will pay you immediately for your invoices. It will then collect the money from your customers. With a trucking factoring company, you will be paid the invoice value minus a fee and a small percentage of the invoice that is retained until the bill is settled by the customer.
How Factoring Can Benefit Your Trucking Company
While you do get paid in advance for your sales invoices, factoring isn’t the same as a loan.
A trucking factoring company will buy your sales invoices from you at a discount. It provides you with a number of advantages over a traditional bank loan or putting everything on a credit card.
Quicker Cash Access
Undoubtedly, the biggest frustration for managing cash flow is when you are owed more than enough to cover your expenses and debts. But without receiving those payments, you can’t pay your vendors.
Factoring your invoices eliminates that time lag between sending an invoice and receiving the cash. You can use factoring to get most of that invoice’s value within just a couple of days.
Another benefit of using factoring for your trucking business is that you get more flexible terms. You can set up invoice factoring to suit your needs, and you’re not locked into a long-term contract.
Smoother Cash Flow
With factoring, you get cash for your invoices right away, which improves your cash flow.
There are no lags in your available cash just because one of your major customers hasn’t paid their invoice yet. This makes it much easier for you to pay your vendors on time and keep your own credit in good standing.
Since you can pay vendors faster, you can negotiate better terms and be able to get early settlement discounts where applicable. Your increase in available cash also allows you to invest in your company, like adding more to your fleet for example.
All of these things help you increase your profits and help your trucking business grow.
Finance Off the Balance Sheet
Loans show on a balance sheet, but factoring isn’t lending, so it won’t need to be there. You won’t have monthly repayments to make while your business gets a healthy injection of cash and improved cash flow.
Cost-Effective for Trucking Companies
In the past, invoice factoring was seen as more expensive financing. Times have changed, though, and the cost of factoring is significantly less.
The cost of trucking factoring will depend on the volume and value of your invoices as well as the creditworthiness of your customers. It’s a great idea to discuss this option with a trucking factoring company to see the rates you can get.
Improve Your Receivables Management
By factoring your invoices, the truck factoring company will manage your accounts receivable. You won’t have to stress over collections as they will do it all for you. It’s a much more manageable way to go about doing business in the trucking industry when you’re first starting your company.
No Cash Restrictions
When you receive cash from your factored invoices, you can spend it however you want. It’s incredibly flexible, allowing you to buy whatever you need and boost your working capital to keep your business booming.
As a small trucking company, you may hesitate to offer your customers a line of credit because you can’t wait for the cash. Unfortunately, that means some potential customers will decline to do business with you. These days, many customers prefer companies that provide credit options.
With factoring, you can offer credit and still get most of the value of those invoices immediately. In doing so, you can increase your sales by getting customers who would have been too risky for you to take on before.
It’s easy to qualify for invoice factoring. You don’t need to have a perfect business credit score or a strong balance sheet. Trucking factoring companies will be more interested in the creditworthiness of your customers. This means you should be approved quickly and without a hassle.
Overall, invoice factoring is one of the most cost-effective ways for small trucking companies that are starting out to get the cash needed more quickly. This increased cash availability leads to many benefits. While it does come at a cost, the benefits greatly outweigh the small fees you’ll face.
That means you’ll get on the road to having a strong trucking company in the years to come. Go here to get more information about factoring for your trucking company and learn how you can start releasing the major stresses that come with running a small business.
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