Do you own a trucking company that is successfully growing, but doesn’t have the capital to support its growth?
An invoice factoring company may be the right choice for you. If you don’t have the cash flow to make ends meet in your quickly-growing trucking business, it’s probably time for you to look into factoring your invoices.
What are factoring companies?
Understanding what factoring companies are and how they work is relatively straightforward. Invoice factoring provides businesses with fast cash by providing them with money advanced from their own future income.
Companies often have to wait up to one to three months to receive payment for their services, which can be problematic when growth is exceeding cash flow. When this problem occurs, businesses can turn to invoice factoring companies. The business will sell its invoices to a factoring company, which will forward them a percentage of the amount they are owed.
When the invoice is paid out by the customer, the factoring company will collect the money and pay out the rest (the “reserve”) to the business. Some factoring companies will charge you a fee once they pay you the reserve, while others will deduct some money before sending you the reserve.
Factoring companies have very fast turnaround time, much faster than customers who owe businesses money. While it could take up to ninety days to receive cash from a customer, invoice factoring companies generally turn around in less than a week.
This type of company works very well for trucking companies because they can provide you with quick cash to pick up new loads, pay for gas, or get truck maintenance.
Different types of factoring
When you’re looking into truck factoring companies, there are a few different aspects to consider. Some things to look into are experience, reputation, good terms, and competitive rates.
There are two main types of factoring: recourse and non-recourse.
Recourse factoring is the most common type of factoring. It is the most readily-available type of factoring and very cost-effective. Recourse factoring generally has more competitive rates because the business assumes the risk, instead of the factoring company. This means that if the customer never pays the invoice, the business is still responsible for paying the factoring company the full amount.
Non-recourse factoring is less common, and often more expensive than recourse factoring. This type of factoring puts the responsibility on the factoring company, instead of the business. In this case, factoring companies will pay a lot of attention to the creditworthiness of the business.
There are other types of factoring companies as well, including contract factoring, spot factoring, notification factoring, and non-notification factoring.
Contract factoring requires a contracted amount of work between the business and the factoring company. With contract factoring, the factoring company may require all business from a certain customer, or require a percentage of monthly invoices.
Spot factoring is the opposite of contract factoring — the business gets to choose which invoices to send, and when. Spot factoring is the most flexible factoring option.
Notification factoring is the type of factoring where the company takes complete control of the invoice, including communicating with the customer.
Non-notification factoring works in the opposite way of notification factoring. While the factoring account will still handle collections and billing, they will keep all communication with the customer in the business’s name.
Invoice factoring can be a great solution for your trucking business if you are experiencing a lot of growth, trying to get through a rough patch, paying for a one-time large expense (like a new engine), or just outsourcing the billing process (so that you can spend as much time as possible focusing on your truckers and their loads). Factoring companies vary widely in type and cost, but if you look into the company before using it, you can definitely find the right fit for you.
Industry-specific factoring companies
There are a number of industries that benefit greatly from using factoring companies, including healthcare, manufacturing, agriculture, construction, food and beverage, and textiles. Because certain industries use factoring more than others, some factoring companies have become specified.
When it comes to trucking factoring companies, freight bills will be paid right away, freeing up cash to bring the truck to the mechanic, buy fuel, pay your drivers, and carry new loads.
So what are the best ways to find a great trucking factoring company?
5 Reminders For Choosing a Trucking Factoring Company
When you are choosing a factoring company for your trucking business, you will want to take into account a lot of factors. In addition to the previously-discussed aspects, you definitely will want to think about the following factors:
- Value: A lot of trucking factoring companies will offer perks for using them — this could be anything from fuel cards or fuel advances to discounted currency exchanges to equipment financing. If you want to make sure you are getting great value for your money, read up on the companies and find one that suits your needs.
- Customer service: Customer service is important in any industry, but when you need cash quickly and reliably, it is important to know that you can trust the company. Look at their reviews, check out their website, and talk to them on the phone before you decide to go with their business.
- Timeliness: When your time is at a premium and you need money fast, timeliness is one of the most important factors when it comes to choosing a factoring company. Check to see how fast the factoring company is able to turn around cash for you — you know your business better than anyone, so if you know that you need cash within 24 hours, make sure the factoring company you choose can fit your time frame.
- Options: If you’re not sure what kind of factoring company you are going to end up needing, consider finding one that offers multiple factoring options. Some companies offer both recourse and non-recourse options, so if you want to test the waters before jumping in, that might be the kind of company that works best for you.
- Cost: Obviously price is always going to play a huge role in the company you choose. You will need to weigh the pros and cons of each of the previous factors against the cost of the company in order to find the best fit for your business.
When it comes down to it, every business has different needs, even within the same industry. So don’t be afraid to look at multiple options and choose the truck factoring company that best suits your needs.