What is Invoice Factoring?
In short, it is the selling of accounts receivable invoices at a discount in exchange for immediate payment. This practice provides instant business cash flow allowing growing companies the ability to immediately access working capital. Despite its ancient history, invoice factoring has enjoyed a resurgence of popularity, specifically in the trucking industry, as more truck company owners have discovered its extensive benefits.
What is Freight Factoring?
Freight factoring is a form of invoice factoring developed specially for transportation companies. It is designed to meet the needs of trucking companies that struggle to maintain positive cash flow but need easy access to working capital to sustain operations and fuel growth.
Trucking is well known for being a capital intense industry with slow-paying customers. It is no surprise to learn that most truck company owners face a common problem: how to pay bills and keep trucks moving with little to no cash reserves? To meet this problem, freight factoring provides fast cash when it’s needed most and a list of benefits unmatched by any other financing option.
- Immediate access to working capital
- Back office and collections handled for you
- Easier to obtain than a bank loan
- Trucking industry discounts on fuel, tires, insurance
- Credit tools to protect against bad debt
Perhaps the most difficult part of invoice factoring is knowing what factoring company is best suited to meet your needs as a truck company owner. The easiest path to finding the best financial partner to meet your needs is to do a Google search for freight factoring companies and follow this checklist on how to choose the best factoring company to narrow your search.
Factoring Facts
Invoice factoring isn’t a new financing strategy
The history of invoice factoring can be tracked back as far as 4,000 years to Mesopotamia and later to the Romans who sold promissory notes at discounted prices. From the 14th to the 17th centuries, factoring was widely used throughout Europe in clothing, import/export and manufacturing industries. As these nations expanded their empires and colonies, factoring found its way to the Americas along with the Pilgrims around 1620.
If you think 60 days is a long time to wait to get your freight bill paid, think about a cotton grower in America selling their product to England in the 1700s. First the cotton would need to make the long sea voyage to the English buyer; then payment would have to make the sea voyage back. This could takes months!
In today’s world, where time is money, fast payment is essential to sustaining operations and growing your business. Freight factoring delivers payment in hours, not days, weeks or months.
Invoice factoring isn’t a loan
Though accounts receivable factoring is a form of financing invoice factoring isn’t a loan. It doesn’t show up on your company’s balance sheet as debt and it won’t affect your credit rating. That’s because factoring involves selling your accounts receivable invoices to a factoring company at a discount in exchange for immediate cash. You’re simply receiving an advance on money that you’ve already earned. It’s a lot faster than waiting to be paid by your customer.
Because factoring is not a loan, it is far easier to obtain than bank financing. For trucking companies with creditworthy customers, the qualification process is fast and simple. Qualification is based on the credit strength of your customers, not on the performance and history of your trucking company. To qualify, simply fill out a form to speak to a factoring specialist and your first funding can start within a few short days.
Invoice factoring isn’t just for businesses in financial trouble
It’s true that some businesses turn to factoring because their financial history makes it difficult to get traditional financing. However, most trucking businesses utilize freight factoring to manage their companies through the normal challenges of each stage of business development. They include:
- High-growth businesses that need cash flow to finance their growth.
- Trucking companies going through a transition.
- Businesses that don’t want to increase their debt for short-term financing needs.
- Any businesses rebounding from a tough financial year.
- Companies that offer their customers extended payment terms to stay competitive but want to create predictable and dependable cash flow.
Freight factoring isn’t expensive
Decades ago, when invoice factoring was first introduced to trucking, it was considered expensive and useful only to companies in financial difficulty. This is no longer the case. Invoice factoring companies for trucking have tailored the features and benefits of factoring to best meet the exact needs of today’s trucking companies. Low fees, same day funding, accounts receivable management included and value added services have changed the nature of invoice factoring to best serve the transportation industry.
If managed properly, factoring often pays for itself. Trucking companies that use the immediate access to cash to pay bills on time avoid penalties and additional fees. Paying drivers on time is vital to driver retention. With fast payment, trucking companies can put the cash to work to improve efficiencies with money saving technologies and equipment. Most importantly, available cash allows trucking companies to put the cash to work for their trucking business and to execute growth strategies. Here are 8 things you can do today to grow your trucking or transportation business.
Non-Recourse Factoring
Another option to consider when shopping for invoice factoring is non-recourse factoring. Unlike traditional factoring, in non-recourse factoring, the factor assumes the risk of non-payment by the original debtor. If the debtor doesn’t pay the invoice, the business is not required to repay the factor. This method allows businesses to obtain immediate liquidity without the liability of potential non-payment by their customers. Not all companies that offer non-rectal.com/blog/top-11-things-to-understand-before-signing-a-non-recourse factoring cover the same liabilities. You can find some things to look out for in our blog Top 8 Things to Understand Before Signing A Non-Recourse Factoring Agreement.
Is freight factoring right for your trucking company?
As more owners discover its true benefits, freight factoring has emerged as a mainstream financial strategy to create positive cash flow and streamline accounts receivable management. If you are an owner of a trucking company facing the constant challenge of meeting payments, paying drivers and growing the business, then freight factoring is definitely a funding solution you should investigate.
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Across North America and the U.K., we’ve redefined how small and medium-sized businesses access funding—eliminating friction, speeding approvals, and empowering clients with access to the capital they need to move forward. With the capacity to fund facilities from $5 million to $250 million, we support a wide range of business needs at every stage.
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