The trucking industry is booming, even amidst the confusion of a global pandemic. Statistics show that the demand is expected to grow, rising 24% in 2022.
Your future looks rosy if you’re involved in the freight supply chain. But your short-term finances may require a little watering at the moment.
Operating a trucking company is full of big expenses and (hopefully) bigger receipts. Somewhere in between the two is a stack of invoices that haven’t been paid yet, and you need working capital now.
For thousands of transport company owners, the solution is invoice factoring. It’s a method of getting payment for money you’ve already earned.
You choose an invoice that you want to be paid on and then offer to sell it to a spot-factoring company. If they buy it, you reap all of these benefits and more.
1. Instant Cash Flow
Technically, your clients have the full amount of time it says in your payment terms before they have to pay their invoice. When you’re dealing with big companies, this can be anywhere from 60 days to six months.
Meanwhile, you have a lot of outstanding revenue waiting to come in, but you need cash now to keep your business afloat.
Partnering with a factoring company solves this problem fast. You provide the invoices, and they pay you the amount due, minus their fees. Then, they own the invoice and collect the total directly from the client.
2. No Long-Term Monthly Payments
You could always try to take out a loan to get you through this rough patch. However, it doesn’t make sense to put your company in debt for years to get through a short-term situation.
You’re owed money for work you’ve already done. Why should you have to deal with long-term monthly payments, interest fees, and other costs because your clients didn’t pay yet?
With invoice factoring, you don’t have to take out a loan. The company pays you the value of your invoice, you pay their fees, and the transaction is complete.
3. Attractive Payment Terms for Clients
Right now, your trucking company might be playing in the minor league because you can’t afford to wait six months to get an invoice paid.
As a government contractor or a supplier for giant companies, the game changes. Jobs and profits increase—but so does the wait time on your invoices.
These mega businesses usually require their suppliers to offer longer net payment schedules.
You can’t afford to wait it out on your own, but with an invoice factoring company, you can bring your trucking business to the next level.
4. Less Time Chasing Down Your Money
How backed up is your accounts receivable? Do you have dozens of clients who haven’t paid their bills in months (or longer) because you don’t have time to chase them down?
Or maybe you had to hire someone to run your billing department to make sure you’re getting paid. This investment could be cost-effective, yet it wouldn’t be necessary if people paid on time.
Let the factoring company do it instead of hiring someone to call people and remind them of their outstanding bills. As long as you get paid what you’re owed, the problem is out of your hands.
5. Easier Approval Terms
Whether you’re a startup company or a long-term business owner, getting a loan is complicated. Lenders run your personal credit, analyze your business creditworthiness, and make you jump through hoops.
And if your credit history is a little rocky, the hoped-for approval turns into a denial letter.
Invoice factoring is completely different. Instead of your creditworthiness being called into question, the client’s is used.
You choose an invoice to sell. The factoring company looks into the client’s credit history and decides whether to take the risk or not.
Paperwork is minimal, approval is fast, and you can have your funds in as little as 24 hours. And the best part is that your credit score and business finances don’t matter.
Operating a trucking company can be lucrative, but it’s also expensive. From maintenance and fuel to supplies and overhead, the costs add up.
You can have thousands of invoices outstanding. If no one is paying them, they don’t help you cover your bills.
If you sell them to an invoice factoring company, though, you can move on with your finances and keep on trucking.