Transport Factoring For Trucking Companies
Transport factoring a little known financing tool that can often make the difference between closing the doors or staying in business. Fuel expense, driver pay, and other expenses make the trucking industry one of the most cash intensive business segments in today's harsh economic conditions. An old method of accounts receivable finance, called factoring, is helping many of these trucking companies stay alive and even grow by turning cash quicker within the business.
The typical trucking business searches for loads via today's Internet load boards and finds loads that offer a particular fee for providing the transport service. Most often these loads come with credit terms that the trucking company must accept in order to do business in the industry. Its very common that they must except to get paid in 30 to 45 days after they perform the transport service. So smaller trucking business units are put in a position in which they must front the cash for fuel, and driver payments long before the payment for the service they provided arrives in the mail box. With today's higher fuel prices and slim margins this is often a recipe for disaster.
Once transport factoring is put in place the finance company or factor as they are called in the factoring industry will purchase the freight bills and invoices from the trucking company which typically provides them 90% to 99% of the invoiced total the same day the trucking company completes the service. The factor charges a fee that ranges from .59% to as high as 5% for the service. So if your fee structure was 2.5% the trucking company could get 95% up front and after the payment arrived for the invoice a 2.5% reserve would be returned back to the trucking firm while the factoring company keeps 2.5% as the earned fee. The reserve is a small cushion held back in case of bad debt or any other issues that could arise when factoring invoices is in place.
As you can see 2.5% would seem to be a reasonable expense to get paid 30 to 45 days sooner and have access to the funds when it is needed most. This way, fuel can be paid for and drivers can be paid, keeping the trucking company moving forward. Transport factoring has been so successful in the industry that even some of the largest trucking companies continue to use the service to fund operations and continue growth. If your a small, medium, or larger trucking company it may make sense to give an old form of finance a good look as it could provide the cash flow boost needed in the trucking industry.
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