To fund your new trucking company, you may have various methods that sound smart and the best way to keep you out of the financial red zone. However, one of the best ways that are time-trusted amongst trucking companies is to use a separate entity to help pay you cash upfront for your unpaid invoices.
This method lets you earn constant cash flow, get new clients, and pay your vendors on time, improving your standing and reputation in the industry. Let’s see the details of this funding method and the main advantages of using it for your new trucking company
Who should choose freight bill factoring for their funding!
Suppose you are deciding between freight bill factoring and another funding method to keep your business afloat. In that case, there are some questions and scenarios that can provide answers to your internal questions. For the most part, owners who have high-volume businesses requiring consistent cash flow to deal with new clients, paying vendors, and paying their employees on time will benefit from using freight bill factoring.
If you are not sure if freight factoring is right for you, you should ask yourself these questions to see if it is right for you. When you have answered these questions, you will have a better idea of the right way to proceed.
- Do you know your clients and trust them? If the answer is no, you may find their credit history is unfavorable, leading to higher freight bill factoring costs. Have any of your clients ever skipped a payment on your invoice?
- If you find your customers have credit issues, the first thing you should do is obtain new clients. Since your customers are responsible for paying your invoices, numerous non-payments on your invoices can cause severe financial strain on your business and prevent you from getting off the ground. To find new clients, consider using a freight bill factoring company to obtain consistent cash flow that can be used for long-haul services and marketing purposes.
- Do you have constant cash flow? If the answer is no, why do you not have continuous cash flow from your clients or services?
- If you have intermittent cash flow, chances are this unsureness in your company is seriously harming your reputation and ability to earn new clients. Use freight bill factoring to improve cash flow, pay employees, and pay vendors without worrying about any non-payments on your behalf. Paying your vendors and employees on time will improve your word-of-mouth reputation and standing in the business sector.
- Do your clients usually take the full mandated time to pay their invoice, meaning you have to wait 30, 60, or 90 days for payment?
- You need to make sure your clients pay within the mandated date on the invoice. Usually, customers pay within 30, 60, or 90 days, but if you find your clients are not paying, freight bill factoring can influence them to pay on time, as soon as possible, and in the total amount stated.
Pros and cons of freight bill factoring
When comparing products and services, you need to weigh the pros and cons to ensure you are making the right decision. The same goes for new owners in the trucking industry – you need to know the pros and cons of freight bill factoring before jumping the gun and choosing a service. Fortunately for new owners, you will see that freight bill factoring is a smart choice for entrepreneurs and small business owners. Although it is similar to bank loans, it still differs in various aspects, such as the speed of providing cash directly to the owner, the length of the approval process, and the high interest rates.
Even though many companies prefer using freight factoring over bank loans, there are still some negatives about using this process. Although freight bill factoring is an ingenious method for trucking companies, you need to know the potential drawbacks before deciding. Let’s see this alternative funding method and why it can be considered a poor choice for some trucking businesses.
Pros of freight factoring
- Speed of funding– Fast funding is the most significant advantage of using freight bill factoring as a trucking company. If you need to pay vendors, clients, or employees almost immediately, using freight bill factoring is the way to go – your reputation will thank you. Instead of waiting weeks for bank loans to go through the system or gain approval through a lengthy and strict process, you can get cash in hand or in your account in a matter of 3-5 days, depending on the company.
- Credit history – A questionable credit history will not harm your chances of approval by the freight factoring company. The only thing the company uses as collateral is the reputation and credit of your clients. By evaluating your clients and their past payment history, the freight bill factoring company will determine if they can cover the costs and pay for your clients’ non-payment. The good thing about this step when it comes to freight bill factoring is the ability for your truck factoring business to cover you when you can’t pay for any missed invoice payments.
- Constant cash flow – You can quickly grow your business, earn new clients, and expand your clientele without worrying about additional expenses due to the steady cash flow. New business owners will attest one of the hardest things about a new business is getting clients – why should people trust you if you are new in the industry? With the trucking industry, the story is the same. To find and get clients, you often have to spend money, putting you in debt and preventing you from delivering the client’s needs – which seems to be a vicious cycle as a startup business. With freight factoring, you can stay above the financial red line, gain new clients, and deliver the services you promised.
- Allocation of resources – Since the freight factoring company has to collect from the clients, you can focus on what really matters in your business. By spending more time focused on your employees, getting new clients, marketing, and delivering products and services on time, you can better allocate your resources without worrying about collecting payments from your clients.
Negatives of freight factoring
Although there are many positives to freight factoring, you need to see both sides to make an intelligent decision regarding the funding of your trucking business. We find that the positives greatly outweigh the negatives when it comes to freight bill factoring, but every business owner has to see both sides of the coin before jumping the gun. Seeing the pros and cons of freight bill factoring will only make you more confident you are making the right decision when you decide to use this method to fund your new business.
- Expensive fees later on – The agreement between a business and a freight factoring company is free, meaning fees can build up over time during the use of services – and sometimes catch you by surprise. Make sure that you can cover the transaction fees so you don’t lose money in the process of using truck factoring services that can end up causing hefty payments later on in your business process.
- Pay for non-payment clients – If your customer doesn’t pay, it comes back to be your fault. If you choose a specific type of freight factoring, known as recourse factoring, you have to pay for clients when they don’t pay. Not only does this mean you could potentially be paying thousands of dollars per invoice, but you will also lose clients in the process. Your freight factoring company can’t make a client pay, especially if the business has become bankrupt when waiting for payment. If this is the case, you have to pay the price – literally – when it comes to covering your client’s bill and ensuring you don’t have any more unpaid invoices.
- Receivables – You lose control over some of your receivables since the factoring company is the person responsible for communication and delivering information to and from the clients. Instead of dealing directly with the client themselves when it comes to your finances, the truck factoring business will take that job, leaving you to spend more time on what matters and taking away some of the control of the receivables in the process. Ensure you let your clients know the freight factoring company will be the middleman, so they are not surprised to be dealing with someone new.
- Long-term commitment – Some agreements involve you sending all of your invoices to the factoring company. If you get in bed with a freight bill factoring that requires this long-term commitment, you may want to find another company that doesn’t need this step. If you are a new company, signing any long-term deal can be daunting and intimidating, so signing a short-term agreement could be better for a new startup business.
Using freight bill factoring is an excellent way for new trucking companies to stay afloat and earn new clients. The main benefits of using freight bill factoring are to allocate your resources, make constant cash flow, spend your time and money on better and more critical aspects of your business, and not worry about the non-payments of clients.