The business of cargo transportation requires large amounts of skills and knowledge from the companies’ owners. And at the same time, you need to understand financial issues for your business to flourish. And this is very difficult.
In order not to be distracted from cargo, drivers, and dispatchers, it is necessary to establish cash flows. And one of the ways is truck factoring. Today we will analyze the work of the truck factoring company, which is described here, and understand how to integrate it into your business.
What is truck factoring?
Let’s explain with an example.
You have unpaid truck invoices with which nothing is happening yet. There is no option to wait for the payment deadline, and for what? Money is needed all the time. Therefore, you sell these invoices to a factoring company and receive 97% of the amount in cash from these accounts.
Now unpaid services aren’t your problem, you have received money for them. As soon as your client pays the factoring company, they will transfer the remaining 3% to you. As a result, it will be a little less, because the company also charges a commission. But in fact, you received 97% of your money right away! This is how truck factoring works.
How to conclude a contract with a truck factoring company?
You need to contact a reliable factoring company that has long-established itself in the market. Brokers will require your data, information about the solvency of customers, and truck invoices. Such companies can perform this service with invoices once. But there is a great option to transfer all your truck invoices by default to this company. This way you will have a stable cash flow and your business will flourish.
What do you need to know before agreeing to factoring?
We will sort out the concepts a little so that you are guided when signing the contract.
For example, you are a customer. While 97% of its amount will be transferred to you for an unpaid invoice, this is an advance rate.
You have 3% of the amount that the factoring company hasn’t transferred yet. This money will be transferred as soon as the shipper pays. Until that time, they are called a reserve.
Factoring companies have had many services during their existence. For example, the fuel supply. They issue an advance payment for fuel at the time of receipt of the cargo. A great idea, because there is often no money on the road because the client hasn’t yet paid for the work.
What else is important to know? Get acquainted with the conditions offered by the truck factoring company. Some of them require personal guarantees, and some look only at unpaid invoices. The contract should say during what time you will receive the bulk of the funds. It typically takes a few days, but it’s still worth checking out.
It is also worth reading the contract because some of them cannot be broken before the deadline. And it can be a year, or two, or three years. This means that if you don’t like the services provided, you will have to work with them until the contract is canceled.
If you are a small company, we would recommend point factoring. This means that you send only the invoices that you need. In another case, all unpaid invoices are immediately sent to the company, and you don’t control them. Therefore, for the first time, point factoring will be the best solution.
Also, the tariffs and fees of the truck factoring company depend on the monthly volume of your company, the structure of the factoring fee, and the program you have chosen. This means that with an increase in the number of your shipments, your rate will decrease. Because usually factoring companies give a discount on a large volume.
Why should you choose factoring?
You’ve probably already noticed that this service can be very useful. We agree with you. But first of all, we will tell you about all the advantages of factoring to convince you definitively.
Stable cash flow
Invoices can be paid in 30-60 days. It seems endless, especially when money is urgently needed for business expansion, fuel, salaries, etc. In this case, factoring is a great idea. Considering that you get the money right away. Cash flow improved and stabilized immediately.
Say no to debt
The money you receive as an advance isn’t a loan. This means that you have no debts on the balance sheet. Your credit score doesn’t suffer either.
If your clients don’t pay invoices for a long time, your business doesn’t develop because of this, the creditworthiness of your clients is low, then you require truck factoring. Sustained financial support moves the cargo transportation business forward. And this is very important for the economy of the US.