Freight factoring refers to the act of selling freight bills and/or customer receivable invoices.. By factoring freight bills, the trucking company does not have to wait for customers to pay and they can make instant reinvestments that allow them to get back on the road and take on new business, add trucks or leverage their availability and reputation to serve bigger freight accounts.
1. Freight Factoring Eliminates the Cash Flow Slow-Down
Growing companies need consistent cash flow to meet operational needs, take on new business, make needed repairs or invest in new equipment. Our clients commonly cite slow-paying customers or customers with extended terms as one of the reasons that freight factoring is beneficial to their trucking business.
2. Factoring Invoices Facilitates Competitive Advantages
By extension, getting payment on customer invoices the same day they are issued – without waiting for them to pay – can create an instant competitive advantage for a trucking company. Since slow-paying freight customers or customers with extended terms no longer affects their cash flow, they can extend better payment terms that can help them bring on new accounts.
3. Factoring Freight Bills Frees Up Working Capital
No business can grow without access to working capital. If working capital is locked down in customer receivables, it cannot be put to work to pay operating expenses, meet payroll, cover the cost of taking on new business or be put to work to add new trucks to the fleet. Lack of cash flow can stall your growth; access to working capital lets you reinvest in your business more quickly!
Trucking companies that factor invoices get instant access to the working capital that could otherwise be locked down for weeks – or even months – while waiting for customers to pay. You can calculate how much working capital may be tied up in your receivable invoices using our freight factoring opportunity cost calculator.
4. Factoring Invoices Provides a Trucking Company with Financial Leverage
Not only factoring freight bills give you the ability to become more attractive to potential customers, it also gives you leverage with suppliers and vendors. With working capital in hand – instead of locked down in customer receivables – you can negotiate more favorable terms and savings. This type of cost savings means improved profitability for your trucking business.
5. Factoring Freight Bills Reduces Operational Costs
Saving money with vendors and suppliers is only one way that factoring produces a cost-savings for a trucking company. In addition, operational costs associated with bookkeeping for accounts receivables and any associated collections activities are reduced – or even eliminated altogether.