Running a trucking business can be a great way to earn a living, but to do this successfully you will need to have a lot of cash on hand. A lot of cash goes out daily with trucking companies, but the cash inflow is not always steady. If you do not have a large amount of cash on hand, you could experience problems with paying your bills and affording daily expenses. This is one of the main reasons a lot of trucking companies rely on accounts receivable (AR) factoring to keep them afloat. Here are two reasons this is the best way to keep your cash flowing in with your trucking company.
It Is Not a Loan
One key thing to realize about AR factoring is that it is not a loan. When you use factoring, you are not borrowing any money at all. Instead, factoring is simply selling your AR accounts. AR accounts in a trucking business are generally made up of freight invoices. When your company provides shipping services for someone, you will bill the person for the services. This creates an AR account. This person may have 30 days, or longer, to pay you for this bill.
This 30-day period can create issues for your trucking company's cash flow. During this time, you will still be paying money out for gas, payroll, truck repairs, and other expenses. Eventually, you may run out of money.
Getting a loan to help you get by can be helpful, but it is not a good long-term solution. When you take a loan, you will have to repay it in the form of payments. This means you will have even more cash going out each month. With factoring, you will sell your accounts to a factoring company. There is no money to repay, and your cash flow problems will be solved.
It Is Easy to Do
The second reason to consider using factoring is due to its simplicity. Once you select a company to use for your factoring, you can set up a schedule for the purchases to occur. You could do this on a weekly or monthly basis, and it will automatically occur. All you will have to do is send in copies of the AR statements. The factoring company will then send you money.
While factoring companies all have different terms, it is very common for the process to work by the company paying a certain percentage upfront. For many factoring companies, this percentage is between 60% to 90%. This means that you will receive 60% to 90% of the invoices you have outstanding.
This money will come right away from the factoring company. They will then forward you the rest when the bills are paid. They will take a small percentage of the money out for themselves. This is how factoring companies make money.
Another key advantage to consider is that you will not have to worry about collecting money from the companies you extend credit to. The factoring company will assume this role, which will leave you with less book work to do.
When looking for a factoring company, you should compare the terms of several companies. As you do this, look at
- the percentage of money they offer upfront
- the percentage of fees charged for the services
- the way the company handles automatic transactions
- the way they pay out the remaining balances
Factoring is a very common service today in the trucking business and in many other industries, as well. If you are interested in learning more about this process, contact a company that offers factoring for trucking companies, such as Factor Loads.
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