Anyone running a transport business has realized the pain of arranging for ready cash to take care of routine expenses such as fuel, drivers' wages, etc. On the one hand the transporter would have to extend credit terms ranging from 30 to 90 days to clients while on the other having to pay for all expenses in cash. This puts a lot of pressure on cash flow and could soon lead to a financial drought if the transporter is too over-stretched.
While the transporter's balance sheet might show a very healthy balance due to the ledger balances showing accounts receivables, there is an inevitable delay in receiving payment from clients. The ground reality is that figures on paper are useless when ready cash needed to pay wages to drivers and other employees. Accounts receivable financing companies take care of this problem with various schemes by which a transporter can 'sell' his outstanding invoices to these factoring companies, who will pay him almost the entire amount of those pending invoices after deducting their factoring fee and they might also keep a small percentage of that money pending until his clients have cleared the invoices on the due date. This money can be electronically transferred into the transporter's bank account within 1 to 2 days.
This move ensures that the transporter gets cash almost instantly against his credit invoices and this money can now be used to pay off immediate expenses. The factoring fees could be from 1% to 5% and these fees would depend on the credit reputation of the transporter's clients, the total amount of business given to the factoring company and the number of credit days extended to his clients. If profit margins can accommodate the factoring fees, then the transport company can definitely go in for such an arrangement.
However, clients will have to be informed about the inclusion of the factoring company into the equation. Some of them might resent being asked for payments from a third party so it is essential that details are explained fears put to rest. The transporter's factoring company could also take over the actual collection of payments from his clients and this could prove to be a big boon for his business since he will now be able to divert all his energy towards increasing his business instead of running after payments.
With banks tightening the rules before handing out loans, accounts receivable financing is a great way for transporters to get a grip on their finances and they could watch their factoring companies business grow along with theirs as they get more credit clients into their fold.
With competition fierce in the transportation industry, accounts receivable financing is a suitable method for a transporter to get ready finance without much hassle and could turn into an extension of his transport business and the factoring company would also grow alongside. With a wide range of specialized tailor-made services offered, receivable financing is a better option and is thus an ideal financial tool for the transport industry.
Got a Question? Ask.
Ask the community a question about this article:
Frequently Asked Questions
Factoring Leads?
By: Joshc | 28-09-2007
Do you know where to buy factoring sales leads?
Q&A Powered by:
Latest Finance Articles
Understanding Debt Consolidation Loans
By: Richard Greenwood | 07/10/2008
It can be all too easy to end up in debt and especially during the current times of financial uncertainty you may find yourself unable to make repayments. Consolidating your debt can make your debts easier to manage and lower your interest charges meaning you become debt free faster.
Credit Card Comparison
By: Richard Greenwood | 07/10/2008
Credit card offers are everywhere and all claim to out do each other. How do you cut through the marketing talk and understand the key features you need to compare to make an informed decision. Find out with this informative article on credit card comparison.
Shopping For Auto Insurance
By: Brenda Williams | 07/10/2008
When you get your license for the first time before you begin driving you need to get car insurance as it's mandatory to have car insurance while driving. Car insurance can be rather expensive, especially for new drivers which is why you'll need to ensure that you're getting the best...
Taking 100% Responsibility - the Prerequisite for Creating Money & Marriage Success
By: Leslie Cunningham | 07/10/2008
It's a simple concept, to refrain from blaming and complaining, and yet it's a challenge to change a habit, especially one that everyone else has. Like sticking to your diet, when everyone else around you is enjoying chocolate cake. Keep reading and you'll find out how this relates to your marriage and finances. Then I'll share some action steps to help you become 100% responsible for your life.
Retirement Income Investing and Your Portfolio
By: Steve Selengut | 07/10/2008
Brokerage firm monthly statements are designed to promote either fear or greed, depending on the current market environment. Nowhere on your statement can you find numbers that report your net investment, your total working capital, or your true asset allocation. Current and projected income numbers are given little attention
Buy to Let Investors Get a Boost
By: Parmdeep Vadesha | 06/10/2008
Buy to let UK investors are in a prime position to take advantage of a new government plan to spur property market activity. The scheme aims to permit property buyers to buy properties worth up to
How to Buy a Repossessed Property for Below Market Value
By: Parmdeep Vadesha | 06/10/2008
Buying a repossessed property is what matters for investors who are keen on reaping high profits. But even with the advantages it poses, there are certain aspects you need to be aware of before you start on the task of acquiring your next property cheaply.
Brits Should Ensure They Have the Cheapest Energy Supplier
By: Abbi Rouse | 06/10/2008
With energy prices escalating steadily, consumers could knock considerable amounts off their utility bills by switching from their areas default supplier.
More from Kris Koonar
Your Guide to an Excellent Commercial Truck Driving Education
By: Kris Koonar | 02/09/2008 | Careers
Companies are always looking reliable and skilled truck drivers to deliver their products anywhere in the country. This may also include packers and movers, and other companies not dealing in any specific product types, but services.
Look To A Bright Future In Commercial Truck Driving
By: Kris Koonar | 02/09/2008 | Careers
If you're good and have a clear driving history, you wouldn't look for a job, but the company will look out for you! Never before has the outlook and thrill of a career in truck driving been better.
The Benefits Of A CDL Training
By: Kris Koonar | 02/09/2008 | Careers
To drive those huge vehicles, it is required by law to complete your CDL and go through the process to train for a career in driving trucks.
Finance Tips For The Graduating High School Student
By: Kris Koonar | 02/09/2008 | Finance
When it comes to money, planning plays an important role. Take help from elders to manage your finances and advice when it comes to spending.
Preparing For Your Commercial Truck Driving License
By: Kris Koonar | 02/09/2008 | Careers
You cannot drive a truck without a CDL, let alone any heavy vehicle. Therefore, the bottom line is that if you want to establish yourself in the truck driving business, obtaining a CDL is essential.
Commercial Truck Driving Schools- How To Choose The Best
By: Kris Koonar | 02/09/2008 | Careers
While choosing the truck driving school, you have to consider whether the school is certified, and able to meet requirements and standards needed in the trucking industry.
How To Get The Right CDL Training
By: Kris Koonar | 01/09/2008 | Careers
You may need to find out Institutes or training companies or schools to pursue in your CDL training and receive driving certifications. You could contact various drivers, who would give you the best information from their network.
How to Get a Commercial Truck Driving Job
By: Kris Koonar | 01/09/2008 | Careers
Commercial truck driving is a lucrative and secure career these days, making it a much sought after option. Before you can become a certified commercial truck driver, you must pass a few tests.
Finance 
| Posted: 02-06-2008 | Comments: 
