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Owning a trucking company or logistics company (freight
brokerage) can be very profitable. At the same time, transportation companies
tend to be cash hungry. There are fuel expenses, employee expenses, operator
expenses, repair expenses and many other expenses that need to be paid quickly.
However, most customers don�t offer quick-pays and usually pay their freight
bills in 30 to 60 days.
This creates a major challenge. Why? You have expenses that need to be paid
quickly and customers that want to pay slowly. Unless your company has some
available funds, you will most likely run into problems.
Many company owners try to address this cash gap by trying to get business
financing from their bank. However, they soon learn that banks seldom provide
business loans to small transportation companies. Unfortunately, a business loan
is not an option for most logistics and transportation companies. So, what is?
In many cases, trucking companies have an option that is better that a business
loan. It is called invoice factoring. Factoring can provide logistics companies
with the financing they need to meet their current expenses and grow. And, as
opposed to bank financing, factoring is easy to obtain and can be setup in about
a week. So what is factoring? Factoring provides companies with an advance on
your slow paying freight bills. This enables them to meet expenses while waiting
to get paid by customers. It works as follows:
1. You company delivers the load and invoices the customer
2. The factoring company provides you and advance of up to 90% of your freight
3. You can use the advance to meet all expenses
4. Once your customer pays, you�ll get the remaining 10% less a small factoring
The cost of factoring can be anywhere between 1.5% to 3% per month. The cost is
determined by your industry, the quality of your customers (who pay the freight
bills) and the amount of financing you require. Freight bill factoring is a
great solution for logistics and trucking companies and can help grow your
company to the next level.