If you run a trucking business, you might be all too familiar with the problems that delayed bills of lading (BOLs) bring to the table.
It’s because the collection period of a trucking invoice is the bane of every freight operation. From large scale enterprises to smaller entities, almost every business that operates in the trucking industry experiences these difficulties on a consistent basis.
When freight businesses need to wait for 30-90 days to get paid for their work, it can disrupt their overall revenue generation. Not only does it cause cash flow problems, but it also threatens the business’s operational activities in question.
That’s why many trucking operations turn to freight factoring to get out of this financial cul-de-sac.
By looking into this financing method, you can also generate immediate cash from your pending invoices. Thanks to the overall factoring model, you can also do so without going through high costs and difficult requirements. If that sounds appealing to you, you shouldn’t waste a second before contacting a freight invoice factoring solution.
But before you do that, you may have some inquiries on your mind: Exactly how much money can you get from freight invoice factoring? What type of options are available? Even more so, how does the process work?
To help you find answers to all of these questions, here’s a lowdown on how truck invoice factoring can help your financing needs.
What Does Freight Factoring Mean?
To start with an overview, freight or truck invoice factoring refers to the method where a business sells its unpaid BOLs to a specialized company. This factoring firm can then pay the trucking business a majority of its invoice value right away.
When the end client settles the invoice upon its due date, the factoring company recovers its investment in full. It also pays the remaining amount to the trucking business, and charges a fee for its services.
This process has many benefits, with the most evident one being the reduction of the collection period. No matter if the actual invoice due date is 30 days, 60 days, or 90 days away, the factoring firm can purchase it and swiftly make the respective payment to the trucking business. The factoring company then waits patiently for the client to settle the invoice before it recovers its payment.
This method relieves the trucking company from the burden of waiting for the invoice’s due date. It also cuts down the risk to its operational activities such as funding vehicle maintenance and employee payroll.
Since the trucking industry is known for the excessively lengthy collection period of its BOLs, freight invoice factoring has become a popular method for businesses to resolve their cash flow problems. By simply turning to a factoring company, trucking operations can make sure that they can continue funding their operations with ease even if their invoices are months away from being fulfilled.
Whether you have recently started working in the trucking industry or if you have been running your operations for a while, factoring your invoice can help your business stay on its feet. Freight factoring is especially significant if your organization is running low on liquid assets and doesn’t want to turn to expensive or complicated financing options.
How Much Money Can Invoice Factoring Generate For You?
It’s common for factoring companies to cover around 80-90 percent of your total invoice amount at the start of your transaction. Some firms go even a step further and offer 95 percent of your BOL value upfront. This particular percentage depends from company to company, which is why it’s important that you look for a provider that offers the maximum factoring amount against your invoice.
But even when a company offers a certain trucking business 80 percent of the total invoice amount upfront, it doesn’t mean that it will adhere to that calculation for all of its clients.
Depending upon factors including but not limited to the financing amount and credit checks, a factoring firm can easily increase this initial offering. If anything, this emphasizes the importance of contacting different factoring providers and discussing your case instead of selecting a company just on its face value.
It is also important to note that even though the initial coverage amount may differ, every factoring company covers the trucking business’s remaining invoice amount after deducting its fee. Once your end client settles the invoice, you can rest assured that your transaction will get completed under this model without any issues.
With that, you need to make sure that you discuss these financing details with the freight factoring company before you finalize the sale of your invoice. This ensures that you aren’t caught in the dark about these aspects. As a result, you can move forward with a transparent and informed approach.
It’s also critical that you choose a reliable and established invoice factoring company. This makes sure that you can benefit from the factoring process without running into unnecessary issues or hurdles.
You Should Also Learn About the Different Types of Factoring Solutions
While invoice factoring is quite generalized at the surface level, the process has more to it than meets the eye. This doesn’t mean that the overall solution is more complicated than it seems. Instead, it only outlines that factoring has different options to offer that provide you with even more flexibility than you may think at first.
These options include two distinct segments, which are called recourse factoring and non-recourse factoring. To see which of these options is right for you, you need to learn more details about each of them.
Recourse factoring is the more popular sibling out of the two available options. In this factoring method, the overall process to receive your required funds works the same way as described above.
Once you sell your invoice, you get a majority of its value at the start of your transaction. After the client has paid the amount in full, the company retrieves its investment and delivers the remaining funds to you. The overall service fee remains present in this model and acts as the factoring company’s primary profit.
However, the difference in this freight factoring method shines through in terms of its liability arrangement. If your client fails to pay their BOL by the due date, you need to return the funds you received from the factoring company and essentially repurchase the invoice in question. That is where “recourse” gets attached to the process.
This process saves the factoring company from bearing any liability for your client’s failure to pay their invoice. With that, it does come at a lower cost than the other method called non-recourse factoring.
Non-recourse factoring has an unconventional name. But it also follows the general process that is attached to the overall factoring mechanism. It would help if you still had an unpaid invoice in hand, and you still need to agree with the offered terms and conditions, such as the service fee. With that, you don’t have to bear the liability in most cases where your client fails to pay the invoice.
It’s because when you obtain your funding from non-recourse factoring, it allows you to shed your liability in many cases where the client fails to settle the invoice. This makes sure that you can freely spend the funds you received after invoice factoring, without fretting about returning them due to your client’s inaction.
This method also follows the same application process and the same reduction of the collection timeline for your invoice. However, this non-recourse freight factoring comes at a higher cost than recourse factoring.
If your company wants to reduce its risks and if you want to minimize the chances of facing a financial challenge, this type of factoring might be the best choice for you.
Why Do People Turn to Freight Invoice Factoring Anyway?
Despite the availability of other financing methods such as payday loans and business loans, freight invoice factoring stands apart in terms of its popularity. This remains true even when you consider the possibility of third-party investments for any trucking or freight operation.
It’s because the invoice factoring process is fast, secure, and straightforward. Unlike a loan, it doesn’t bear excessive interest rates. In contrast to a capital injection, it doesn’t have intensive timelines in place.
This makes sure that as you receive your immediate financing against invoices that are weeks or months apart from being paid, you don’t have to risk your money or invest more time in return. You can continue performing your work without worrying about paying monthly interest rates or diverting your attention from your core business activities.
When you reach out to a popular invoice factoring company, you can ensure that you can resolve your cash flow problems without experiencing any service or financing issues. This way, you can continue funding your operational and payroll expenses through freight factoring despite your actual revenue being realized in the future.
Due to these reasons, invoice factoring stands apart as the go-to financing method for many trucking businesses. No matter your freight operation scale, you can easily reach out to a reliable provider in your area and see if you can benefit from factoring your invoices to resolve your cash flow issues.