How Truckers and Brokers Can Use Freight Factoring

If you own a truck fleet or are a freight broker, then you would know that cash on hand is an important condition like a mirage in the desert. On the one hand you have customers, who would be paying your freight bills after 30 to 60 days and on the other hand, you have to pay fuel bills and drivers of your trucks, who need cash payment immediately. Here is where a freight factoring company can tow you out.

A freight factoring company is one, which will "buy" your freight invoice off from you. They will now be responsible to collect payments from your customers. You will get the invoice amount in 2 installments. The 1st installment will be around 90% of the invoice value and will be transferred to your account in 1 to 2 days. The balance amount, minus the 'factoring fee', will be transferred to your account after your customer has made the payment on the due date.

This factoring fee is usually between 1.5% and 5% of the invoice value and depends on various factors such as the number of credit days, you have mentioned on the invoice, the credit rating of your customer as rated by the factoring company and the total volume of business, which you can provide to your factoring company. This is not such a bad deal, as around 2% cash discount is what you would normally offer, if your customer were paying instant cash against delivery. Even if you had approached a bank for a loan, you would still have to cough up a guarantor or collateral and you would still have to pay interest on that loan, not to mention the extensive documentation needed to secure that loan.

The advantage in freight factoring is that your cash flow will improve immediately, as you will get immediate payment against the credit invoice. You can use this money to pay your fuel bills, your drivers and other staff and use this money to take on additional hauls, which will lead to an increase in your business. Since, most freight factoring companies also take up payment collection upon themselves; it will free you from the drudgery of reminding customers for payments. They will also send you regular statements of payment received from your customers and the accounts receivables statements. Freight factoring thus improves your cash flow and allows you to increase and expand your business, without worrying about receiving payments from credit customers.

You can find various freight factoring companies advertising in the media and even on the Internet. Ask around for any reliable factoring company from your friends or if you are approaching a new company, then ask them for a list of their existing customers. Cross check with them regarding the factoring company's services and factoring fees. The factoring company should be reliable and efficient in handling your business and customers. They should be courteous, when going around collecting payments from your customers. They should be able to handle your invoice volume comfortably and should send your regular reports. Also, do not go in for long-term contracts with the freight factoring company, as you may need to bail out, if you are not comfortable with their services.

So, keeping the above points in mind, your trucking or freight brokering business will zoom down the highway of wealth faster, when you employ the services of a good freight factoring company.