The constant game of tug of war that your revenue plays with your expenses is both frustrating and scary. It’s hard to manage cash flow effectively when you can’t predict or count on a certain level of monthly revenue to keep your fleet moving, pay your bills, or meet payroll requirements.
Unfortunately, commercial shippers and customers pay invoices very slowly. They use the standard thirty- to sixty-day terms and rarely pay faster because they don’t need to. They also aren’t in a hurry because you’re not offering any incentives for it.
Slow Payment Problems
You probably don’t have the resources you need in reserve to wait two months for your money. You already provided services that you haven’t been paid for, meaning you have to use valuable resources to track the money down, costing you more money in the long run.
You have expenses you need to pay as well, and with constant outstanding invoices, you can’t pay your bills, suppliers, or employees. These expenses have to be paid quickly, certainly faster than two months from now, so where does the money come from?
If you have the reserves you need, this may not be a problem. You can afford your bills today while waiting for sixty more days to see payment from your customers. However, if you don’t have reserves or you’re in a slow season, you need another way to make ends meet.
One solution to your cash flow problem is to get a loan from the bank. You can get a small business loan or a line of credit. The problem with institutional financing is that it still remains difficult to qualify, and traditional lenders hesitate to loan money to those in the trucking industry because it can be unstable, a fact you’re all too familiar with.
Many banks require that your company prove you have sufficient cash flow to repay the loan. You also have to put something up as collateral for the loan using equipment or real estate. Bank financing is out of reach for a lot of small business owners and doesn’t provide the best short- or long-term solution because of the strings attached.
Financing Freight Bills
You can improve your cash flow and solve your accounts receivable problems using freight factoring. Freight factoring helps improve your cash flow by speeding up the funds you have tied to your slow-paying customers, bills, and invoices.
Freight factoring gives a third party logistics company the funds they need to pay bills and meet payroll, all while taking on new contracts or expanding the business with new runs, additional hubs, or extra equipment. It also gives you stability and allows you to manage your finances without worrying about your constant cash flow problems.
You can use freight factoring to give you peace of mind about how you’re going to get through in the meantime. You can make strategic decisions about where you want to grow or take advantage of other opportunities without tying up most of your time figuring out where the money is coming from.
How Does Freight Factoring Work?
To take advantage of freight factoring, you offer up your open invoices as collateral for the loan. You get the money in two installments. The advance appears in your bank account in a few days after you invoice the customer and covers about ninety percent of the full amount.
The rebate covers the following ten percent of the invoice and is paid to you when your customer pays their invoice. Your finance fee is typically deducted from the rebate portion of the factoring, which is available to you within thirty to sixty days, depending on how quickly your customer pays.
Can My Company Qualify?
In order to qualify for freight factoring, you have to have creditworthy customers. If you have customers who always pay, but they always pay late, their invoices are great candidates for freight factoring. If you can’t prove the reliable payment history of your customers, you probably can’t get freight factoring for their invoices.
This is an important criterion because the foundation of the transaction is based on whether your clients pay their invoices. You also need to meet the following requirements to qualify for freight factoring:
- You have no serious tax or legal problems
- You only invoice for completed work or delivered loads
- You have no liens on invoices
- You have an excellent reputation in the industry as well as experience
Flexibility of Freight Factoring
One of the most competitive advantages to freight factoring is its flexibility. These lines of credit are designed to help you grow, and they increase automatically as your sales grow. As long as your customers have good credit and you meet the criteria outlined by the factoring company, you’ll find that this is one of the best options to solve your cash flow problems.
This type of flexibility helps you continue to grow exponentially based on your increased sales, and it’s a compelling alternative to traditional loans or other small business loans that require stringent qualifications and unfavorable repayment terms.
You can also use freight factoring for quick financing because the funds are available to you quickly after you invoice your customers. You may even qualify for same day funding. These fast business loans help you manage unexpected cash flow problems in your logistics business.
The application process is simple, and the underwriting is fast and easy. If everything goes as planned, you’ll see your money quickly and be able to continue your operations without a hitch. This speed of deployment in conjunction with the flexibility of financing makes freight factoring the perfect choice for growing third-party logistics companies.
Quick Loans Direct can help you with freight factoring as well as other small business loans like a revenue advance or merchant cash advance. With fast business loans and same day funding, you can get your logistics business back on the road in no time.