Do you know what freight factoring is? If you’re part of a trucking company, you most definitely should, as it may just save your business in times of foreboding trouble.
Owning a trucking company comes with a number of expenses, some of which can appear unexpectedly. For example, if a vehicle breaks down and needs to be repaired before an urgent haul, there needs to be sufficient funds for the repair to be performed in time.
During these types of cash flow gaps, a business can take a significant hit. This is where the owner will likely consider taking out a loan. This often comes with a number of requirements and complications, which means more viable options need to be considered.
Freight factoring works around this problem by providing an accessible solution during periods where immediate access to funds is required. In this post, we’ll take a look at what freight factoring is and how it helps trucking companies keep operating.
What is Freight Factoring?
Also known as trucking factoring or freight bill factoring, freight factoring works by lending a portion of the money trucking companies are owed for completed work. The money in question is held by clients who have unpaid invoices. The initial amount paid to the company runs between 80%-90% of the invoice value.
The rest of the money is sent after the invoice is paid off, minus whatever fees are paid in the process. This type of finance is advantageous to both small businesses and established trucking companies. It provides immediate funds during cash flow gaps – but the benefits don’t end there.
Benefits Of Freight Factoring
Because qualifications are based on the creditworthiness of your clients as opposed to your own, borrowers with bad credit will find it much easier to be eligible. Fees are often on the lower side, rivalling that of business loans. Another significant advantage is that factoring money is made available within 24 hours of the agreement.
This makes for a highly effective option to quickly obtain funds when they’re needed. With a steady cash flow, business can keep operating as usual.
There are two types of freight factoring available: High volume factoring and low volume factoring. The former is for larger, more established businesses while low volume factoring is better suited towards small trucking companies that are just starting out.
High Volume Factoring
Allows you to borrow amounts ranging from tens of thousands to a few million pounds. To qualify, your business needs to be running for at least two years and the invoices have to be due within the next 90 days.
Low Volume Factoring
Allows owners borrow smaller amounts of money, but with a maximum of around £100K. You only need to have been in business for a few months and the advance rate can reach 100% of the invoice amount.
How Freight Factoring Works
The process is fairly simple, once you understand the numbers. After you have your invoices, they need to be sent to the factoring company. Then, your advance is paid and you can use the funds while you wait for your client to pay the invoice.
When the client is able to pay, they send the money directly to the factoring company. Alternatively, in the case of low volume factoring, companies can collect the money directly from you in monthly payments. Then, the balance of the invoice amount is paid to you, minus any fees.
With freight factoring, you can be rest assured that your business can keep moving forward when pending invoices remain unpaid. This lets you focus on other important aspects of your business and achieve your goals.
If you want to learn more, contact us today!
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