Do you own a trucking company? If so, you know that as business owners it can be tough to keep afloat with short-term expenses like equipment loans, insurance payments, income tax payments, and more if you do not have your cash flow in order. Oftentimes truckers have to wait 30-90 days or more to get paid on the work they have done.
However, cash outflows of bills and payroll have to be paid on time in between these settlements. Cash flow financing is a valuable tool utilized by trucking companies of all levels in the industry to alleviate this issue by giving you working capital through your unpaid invoices.
What Is Cash Flow Financing?
Instead of waiting for 30, 60, or even 90 days for a load to be paid out while your company balance sheet is in the red, you could get paid today. Some of the premier freight factoring services out there can even get you paid in as little as one hour!
Also, you can explore options with various other lenders but at the end of the day this is what factoring companies do. Factoring companies that specialize in trucking understand the industry better and are built for your business, so they typically work better than other lenders are able to. You can, and should, take advantage of this for your business and take control over your company’s cash flow.
How Does Cash Flow Financing Work?
The process here is pretty simple, you submit your invoices to a factoring company and they will process it to get you paid on the invoice amount. By going this route you avoid waiting weeks for payment. You can have the working capital you need to keep your business operating in your account now.
There is of course a standard fee that comes along with these services. Like with any business transaction, it has to benefit both sides. But when you need working capital to operate your business, a nominal fee to get your invoice paid now is a smart business expense to navigate.
What Are the Benefits of Cash Flow Financing?
When it comes to keeping a positive cash flow into your accounts receivables, the benefits of partnering with a factoring company easily outweigh the downfalls. Freight factoring companies are able to get you now and bypass the weeks it typically takes to get paid out on an invoice. You will normally get free access to check credit on possible customers and brokers, so you know who to work with and who to stay away from.
They also remove much of the back end hassle. Once you submit the invoice, the factoring company takes on the collection work behind the scenes. This is ideal for owner operators that are busy driving and can’t always be available for these tasks. By keeping your cash flow current you also remove any issues within your financing activities such as payroll and other business expenses being held up while you wait for an invoice to pay out. This option allows you to keep your business operating uninterrupted which will lead to optimal business growth.
You might think factoring is only for smaller trucking companies, but there are many larger fleets that factor because it keeps them from having to hire a huge back office staff for collections. Plus the increased cash flow helps keep your business mobile and able to expand more quickly to take advantage of the market.
4 Steps to Obtain Cash Flow Financing for Your Trucking Business
Let’s explore the process of how you can take advantage of cash flow financing to set your business up for success.
Step 1: Deliver The Load
The first step of the process is the hardest part. You need to find a customer, check credit on that customer, and then book and deliver the load so that the invoice is payable.
Step 2: Submit Paperwork
After the load has been successfully delivered, the paperwork associated with the load needs to be submitted to your factoring company so they are able to process it and get you paid for your work.
Step 3: Delivery Verification
The factoring company has to ensure the details of the invoice to make sure there is a low risk factor in them paying you out on it. A major part of this process is verification that the load was actually delivered. Most factoring companies verify a percentage of all loads submitted to them before they will advance, and also verify delivery and rate after they pay it out.
Step 4: Get Paid in Advance
Now that the load has been delivered, paperwork submitted, and delivery of the load has been verified the factoring company is able to pay you up to 98% of the invoice amount, depending on the agreed rate, in advance of the listed invoice terms. Different factoring companies have different service abilities here in how fast they are able to pay you. Some will pay out the following business day, some the same day, and certain premier factoring companies are even able to get you advanced within one hour.
Depending on your contract, some factoring companies also have a reserve program, where an additional percentage of the paid amount is held in a reserve account, and must keep a minimum balance at all times.
Improve Business Cash Flow with Factoring
Many new and smaller trucking companies do not have an impressive statement of cash flows to float expenses on just yet. You can and will get there over time if you plan appropriately through investing activities. In the meantime, you need to utilize the tools available to you that will allow you to grow as a business. It may seem too good to be true, but it is true.
Freight factoring can actually help you offset the hit to your cash flow from operating expenses by paying you for your invoices now. This allows you the ability to cover your business expenses and keep your company operating and growing.
FAQ
You can approach lenders to establish a business loan or line of credit but ultimately the best option is to work with a reputable factoring company to secure the necessary funding.
Not everyone requires a factoring company. If a company can afford to float their short-term operating activities between invoices, then factoring is not necessary.
In most cases, yes. If you find your company is in need of extra cash flow sooner than your payment terms to cover operating expense line items, then factoring is indeed a good tool for your company to utilize.
