If you own or manage a freight company, you may be looking to expand your service area and customer base. At the very least, you need a steady business income to keep your business alive and well. However, running your business smoothly becomes difficult if you’re forced to suspend or pull back your operations while waiting for payment.
To surmount this nagging cashflow challenge, you may wonder about freight factoring.
So, are you better off financing your own loads or having a freight finance company help? Here are a few questions to gauge whether to factor your loads or work directly with clients to get paid.
Factoring Loads vs. Self Financing: What’s the Difference?
Freight factoring (also known as invoice factoring) is a helpful service for many trucking business owners.
It ensures you get paid within less than a week or even the same day, of delivering a load. This is true no matter how long it takes a customer to pay. Many factors also allow you to run free background checks on your customers. This can help you determine whether you’ll face issues with slow payment.
Many owner-operators also choose to get paid directly by their customers. This is largely dependent on whether you have enough cash to self-finance your business. When it comes to high fuel costs and equipment leasing, factors can be a great partners to help you grow.
There is no wrong answer to how trucking companies should operate. However, there are a few easy ways to help you determine whether factoring is right for your business.
Determining Whether You Need Freight Factoring
Here are two of the most important questions to ask yourself when choosing between factoring and self-financing your business.
1. Does my trucking business have a healthy cash flow?
A healthy or positive cash flow means you have more money coming into the company than you’re spending. If you foresee major expenses coming, such as purchasing or repairing costly trucking equipment, your cach flow may tighten. If this means scaling back or working overtime in order to make ends meet, factoring can ease the burden so you can continue to grow your business.
2. How often am I dealing with invoices?
If you’re spending a significant amount of time sifting through paperwork for the week’s hauls, that’s dollars lost. If you only have so much time to relax at between hauls, use it wisely. Many factors are well-versed in trucking operations and have the right staff to help you with your back-office operations. Express Freight Finance, for instance pairs clients with back office specialists that take care of invoices.
Benefits of Factoring
Freight factoring, also known as invoice factoring, is a lifesaver for many businesses.
Many small freight companies have survived industry downturns with the help of freight financing. Here are a few ways using a factoring company can help your business in the long term.
Keeps The Business Debt-Free
Many transportation businesses are at the mercy of large banks and conventional lenders to finance their business. In this case, if cash flow becomes a problem, they may have difficulty keeping up with financially burdensome interest rates. Standard interest rates can range from 5% to 30%, depending on various factors. In the long run, especially for smaller operations, this practice isn’t sustainable and can quickly plunge the company into debt.
Immediate Funding for your Loads
Getting a bank loan can drag your loan application for several days — a luxury you cannot afford. One advantage of freight factoring is a swift release of funding. The best factoring companies out there offer same day payment. This helps many owner-operators and fleet owners with major expenses such as fuel for drivers. For larger trucking businesses, it can also help you process payroll quickly.
Free Client Credit Checks
Freight factoring companies will nearly always run credit checks on customers before they factor the load. Why does that matter for you? Credit checks can help safeguard you and/or your drivers from taking on jobs that’ll result in slow or no pay.
A failed credit check sometimes indicates that customer has a history of not paying carriers or haven’t beem established for long enough. Either way, it’s key to minimize financial risk, and credit checks is an easy place to start.
Financial Services Designed for Trucking Businesses
The best freight factoring companies want your trucking business to succeed. A good way to gauge whether you’re choosing the right factoring partner is whether they’re flexible in their contract terms.
It’s standard to pay on an annual or bi-annual basis. However, some factors will build in fees to opt out of your contract or charge monthly minimums. Be sure to check the fine print, especially for hidden fees.
Trucking companies require a steady cash flow to grow and thrive. If you’re facing major gaps between load delivery and payment or other financial burdens, factoring can truly save the day.
Get a Custom Factoring Rate or Contract Review
To hear more about how factoring can work for your business, get in touch.
Already in a contract? Let one of our agents review it for you. We can help you determine whether you’re paying any hidden fees or may be able to get a better rate.