Freight Bill Factoring- A Great Financing Option for Transportation Companies

Transportation is a very cash-flow-intensive business. The operational costs of running this business are huge. Small and medium size trucking companies find it difficult to manage the ever-increasing fuel bills, driver payments, and breakdown/repairs, lease rentals, tire purchases and salaries. However, most trucking companies are profitable, very few new and medium trucking companies can afford the waiting period of 30 to 60 days to get paid. Unless the trucking company is cash rich with deep pockets, this is an abnormally long waiting period which can affect the smooth functioning of its operations.

Both freight brokers and carriers face the problem of balancing slow paying customers and managing day to day expenses. It is quiet common for trucking companies to get paid in 30 to 60 days. Although older trucking companies have enough reserves, it's the new, smaller and growing companies who find this a challenging to manage. Traditional businesses can ask for quick payments from their clients. However, this does not work with trucking companies, as clients of trucking companies have an upper hand and negotiate for a longer credit period. Availing a business loan is the only option left for the trucking company.

Fortunately there is a tool trucking companies can use to get out of this rut and benefit from a steady cash flow. This tool is called Freight Bill Factoring. Freight bill factoring enables the trucking company to realize their freight bills within a day or two of invoicing thus eliminating the 30 to 60 day waiting period. Once the trucking company puts a factoring agreement in place, it stabilizes the company's cash flow and enables the trucking company to concentrate all its energies on running the transportation business. With this stress eliminated, trucking companies can focus on growth.

Freight bill factoring enables the trucking company to realize as much as 90 to 97 percent of the freight bill from the factoring company, the balance 10% is paid to the trucking company once the factoring company collects the full amount from the clients. Factoring is advantageous when compared to conventional financing. Factoring is very easy if you meet certain conditions. The first requirement is that trucking companies deal with credit worthy and reputable clients. Factoring can be set up in a matter of days; in fact some factoring companies promise to set up factoring lines in as little as two working days. Freight factoring is very flexible and is directly related to your sales. If your sales increase, so does your finance.

Factoring costs vary from company to company and are based on certain parameters. Usually factoring companies charge 1.5% to 3% per month, depending on the volume and the duration. Factoring companies also insist on the trucking company being free of tax issues. Factoring companies encourage trucking companies to deal with reputable freight brokers and customers. These are the two main conditions that trucking companies have to meet before accessing finance. Factoring companies do not hesitate to work with new trucking companies if they qualify. New trucking companies can get a factoring line within a few days of approaching a factoring company.