Freight factoring- A Boon To Transportation And Logistics Companies

Trucking and logistics are good businesses to be in, but at the same time they are very cash intensive. Trucking and logistic companies have to deal with ever rising fuel prices, driver payments, repairs, tire purchases and other operational expenses. These expenses are a constant drain on the finances of these companies and are unavoidable. Most customers of trucking and logistic companies do not pay before 30 days of raising the freight bill. In fact, most of them pay after 30 to 60 days of raising the freight bill. This is a challenge faced by all the small and medium trucking and logistics companies in North America. Unless the trucking and logistics companies are cash rich with deep pockets, they are likely to run into financial problems sooner or later.

Most company owners try and obtain finance from their bankers to tide over this cash flow problem. However banks very rarely provide finance to small trucking and logistics companies. Moreover a business loan is not the solution to this problem. Fortunately, there exists a solution available for such companies that they can use to overcome this problem. This solution is called freight bill factoring! Factoring can provide logistics and transportation companies with finance that helps them meet their recurring expenses and help them grow.

Obtaining a loan from the bank is difficult and a cumbersome procedure. Freight bill factoring is easy and a factoring line can be set up in a matter of days. Factoring is making advance available on slow paying freight bills. Factoring enables the transportation and logistics companies to meet their expenses while waiting for their bills to be paid by their customers.

Factoring works in a very simple way. When a trucking company delivers the goods to the customer, it raises a freight bill. The factoring company buys the freight bill and pays the transporter 90 to 95 percent of the freight bill. This advance can be used by the company to meet its expenses and pay its suppliers. Once the trucking company's customer pays the factoring company the full freight bill amount, the balance payment due to the trucking company is paid by the factoring company after deducting a small fee.

The cost of factoring varies from company to company. It could be anywhere from 1% to 3.5% per month. The cost of the factoring depends on a number of factors like the industry the trucking company deals with, the credit worthiness of the trucking company's client, and the credit period extended to the customers.

Freight factoring is in fact an extension of the trucking company's business. It offers an easy alternative to bank loans. The trucking company does not have to give any collateral security and interest. Freight factoring is flexible as the advances increase, as more freight bills are submitted and factoring fee gets reduced once the turnover increases.

Freight factoring provides instant finance to transportation and logistics companies, thereby creating a cash flow for their smooth operations. Freight factoring companies enable small and medium companies to focus on their core activity and grow rapidly.