What is Freight Invoice Factoring?
Many small to medium-sized trucking companies struggle with cash flow and accounts receivable collection problems that keep the business from expanding and running efficiently. Freight factoring companies help thousands of truckers nationwide manage their finances.
”Factoring” is the sale or purchase of account receivable for a discounted price. It’s also a math term, but in terms of transportation factoring, here’s the only math you need to know: working with a freight factoring company gets you paid immediately.
What is a Factoring Company?
The factoring business exists to solve a common problem faced by trucking companies and freight brokers: customers typically take 60-90 days to pay their bills – long after the business has to pay employees, buy fuel, and do necessary equipment maintenance. Not to mention the risk involved in carrying accounts receivable: Will you get paid? And when?
The solution to this particular math problem is simple: use a factoring company to reduce your risk and get paid immediately. We assisted thousands of truckers with our full suite of solutions to trucking companies and freight brokers.
What Does Transportation Factoring Mean? A Case Study
Factoring is a sale, not a loan. Here’s a short case study of a business that could benefit from factoring:
“Tailgate Trucking” is a start-up business with a problem: lots of business, but not enough capital to support it because Tailgate’s customers all pay in 30-90 days. The problem is that Tailgate has to pay expenses – gas, taxes, salaries, etc. – a lot sooner.
Banks are no help. Tailgate can’t get a bank loan because its only real collateral is its rigs – which are already financed. That’s where a factoring company comes in. As long as Tailgate Trucking has customers, it has a solution: factoring.
The factoring company provides money to Tailgate based on the amount of Tailgate’s invoices. Banks consider this sort of paper “too risky” for a loan, but a transportation factoring company views the invoices as collectable debt – an asset that’s worth the risk.
When Tailgate Trucking’s owner learns about the factoring business, he knows he’s found a solution to the company’s cash flow problems. He no longer has to wait months to get paid on slow-paying freight bills because the factoring business can offer cash quickly.
What is Factoring? The Takeaway
- A factor is a company that pays money for your invoices.
- Factoring helps small and mid-sized businesses manage their receivables and cash flow.
- Factoring isn’t lending. The factoring company buys the invoices.
For many truckers, factoring is often a good deal – but not always. Continue with our easy-to-understand course on that explains what factoring means and how the factoring business works. Learn how to tell the good from the bad, and how to make factoring work for you