In the trucking industry, factoring is the process where the business that delivers a load sells its invoice to a factoring company. This process enables a driver to get paid faster, and the factoring company takes ownership of the unpaid invoice and payment process. Many freight companies will operate on a Net of 30, 60, or even 90 days and factoring allows the driver or trucking company to get paid right away instead of waiting. The advantages of utilizing factoring are managing a quicker turnaround for your cash flow, but there are costs associated with factoring so it is an individual business decision if it’s right for you.
Trucking companies can range from solo drivers to multi-truck businesses and managing operations can be different based on the size of the operation. As an independent driver, getting paid on a load right away can mean a big difference in your operating capital as opposed to larger freight companies that can float operating expenses due to the amount of cash flow they have available.
Is factoring a good idea?
That depends, only you know your threshold of operating capital and what you can afford to wait to get paid for, but for many companies, it is worth it to take a small percentage of your profits in order to have access to funds right away. Those funds can be used in a variety of ways to grow your business and make a difference in other areas. Factoring can allow you the opportunity to pay other production costs and potentially save by taking advantage of upfront discounts that may be available.
But I’m giving up some of my profits!
Correct, as with any service you have to pay for it, factoring companies are taking the risk on billing and collecting for the load, so if anything goes wrong they accept the liability. If you are able to wait to get paid for your work, then you can run your business that way. Factoring isn’t a requirement of the trucking industry, it’s meant to help offset payment delays and leverage cash flow. In the trucking industry, an average of 60% of invoices are paid late, and many small trucking operations run on a tight budget and do not have the flexibility of a larger more cash-fluid business.
What else can factoring help me with?
Along with generating liquid assets by cashing out invoices, it can save on your back office support as well. This means you will have fewer invoices out there that you are following up on for payment, less time to pursue collections, and a lower chargeback ratio. Factoring does not put you into further debt, so it won’t hurt your business credit. Many factoring companies offer same-day funding and have online account access to manage your funds, fuel cards and credits, advances, and non-recourse programs in case your customer doesn’t pay.
What opportunities can factoring offer me?
In addition to the advantages above, such as fuel discounts, and fuel credits, the back office support to manage and collect on invoices, plus not having it affect your business or personal credit, factoring free’s up the number one thing you can’t afford to lose in any business: time.
Free up your time to be more productive in your efforts, concentrate on growing your company, and be able to take advantage of additional opportunities quickly.
Is factoring right for you? The advantages outweigh the disadvantages, but you can decide for yourself if it makes sense in your business model. It’s been an industry standard for a long time and if it didn’t make sense for both parties involved it wouldn’t have stayed around for very long.
