Factoring is common in the trucking industry because it bridges the gap between invoicing and getting paid.
Cash Flow Options— Financing a Start-up Trucking Company
Many of you are surrounded by friends and family members who have made trucking their life’s business. Is now the time to strike out on your own? The industry is growing again after a rough patch, load boards are filling up and the government is predicting a shortage of truck drivers in the coming years. The market is ripe for new trucking companies but the difference between your success and failure will likely be your ability to manage cash flow. Rapidly increasing diesel prices versus the premium price of hybrid trucks leave modern trucking companies with higher expenses than companies of the past. The key is to manage the gap in cash flow after you deliver a load, raise an invoice, but then wait 30, 40 or even 60 days for payment. If you are thinking of starting a company or becoming an owner-operator in this economic environment, consider smoothing out your cash flow through invoice finance, also known as factoring.
Factoring is common in the trucking industry because it bridges the gap between invoicing and getting paid. It is flexible because your working capital is tied to your freight bills so as your company grows, so does your access to funds. Factoring is also appealing for start-ups because, unlike a bank, it requires no extensive credit history.
For owner-operators and companies that are new to factoring, consider a spot factor that doesn’t have long-term contracts and can factor on a selective basis. This will give you the freedom to test the waters and see how factoring can work for you. How’s how it typically works: FreightCheck, one spot factor company, offers a quick and easy sign up; you then select which customers you would like to factor. Completing a short application gets you access to their online account management center. From there you can monitor your account and review all of the FreightCheck affiliate partner offers such as fuel and truck stop discounts.
FreightCheck provides free access to a credit database so you can search through thousands of the most popular brokers and see which are approved for factoring. To factor a load, you submit a factoring application, which usually takes about a minute. After you haul the freight, send FreightCheck your freight bills—usually via its FedEx Discount Program. You will receive same-day funding when the freight bills arrive minus FreightCheck’s flat fee. The money is sent via a free Comchek or Comchek Card. FreightCheck also will prepare your invoices, submit them, and collect payment directly. With this type of factoring, you will remove many of your administrative burdens and have the cash flow you need to get your business off the ground.
For companies that intend to grow quickly and would like a more complete solution, consider a factor that can give you lower rates based on your invoice volume. With Bibby Transportation Finance’s contract--usually a 12 month commitment--a trucking company can take advantage of discounted fees. If you choose this form of finance, you send all of your invoices and back-up materials, such as the bill of lading and the rate confirmation (if applicable), to Bibby Transportation Finance. They will provide you with 80 to 90 percent of the invoice’s value within 24 hours of receipt. A factor will typically hold back 10 to 20 percent until the invoice is paid, minus a small fee. To help expedite payment, Bibby Transportation Finance will bill your customers and make collection calls. With this type of factoring, you get the best rates and the maximum cash flow.