You must have realized that although it is quite easy to start your own trucking business, it is quite difficult to keep it running. You might have credit clients that pay their dues between 30 to 60 days, while on the other hand there might be fuel bills, drivers’ wages and other expenses that might need to be met on a daily basis. A long lasting solution would be to get a regular flow of cash, even while you extend credit to your clients.
The invoices method of raising money would be to approach a bank, to procure an open invoices. However, if you are a start-up trucking company, the bank might foresee a higher risk and might ask you for a larger collateral against the loan. You might also need to furnish the account statements of your company for the previous three years, which anyway would not be possible. The loan amount would also be a fixed amount that would need to be paid back within a set time, by way of fixed monthly installments. Hence, a bank loan could be accompanied with rigid conditions that would have to be met during and after the loan has been sanctioned. In case you do require an additional amount, then that too would be quite difficult since you might have to wait until the first loan had been cleared.
On the other hand, freight factoring involves companies that just ‘buy’ your credit invoices from you and, in turn, pay you the invoice amount within one to two days. These freight factoring companies retain a ‘factoring fee’, ranging from 1.5% to 5% as their service fee. This fee will depend on the credit rating of your client as perceived by your factoring company, the number of credit days that you have extended to your customer and the total volume of business that you can furnish to your factoring company. Essentially, this implies that you get your money immediately, even though you may have issued a credit invoice to your client. This will enable you to pay your fuel bills, your drivers’ wages and meet other expenses immediately rather than waiting for your payments to arrive.
These factoring companies can also take over the collection activities of your business. They can thus collect the payment from your client on the due date. This will free your mind from the tensions related to collections, and you will be able to focus your energy on increasing your sales rather than chasing outstanding payments. The advantage of freight factoring is thus multi-fold. You will not need to provide any collateral.
The amount that you receive will be directly proportional to your invoice value. There will not be any repayment schedule since the amount will be wired to your account after the factoring fees have been deducted. This method of finance will thus increase along with your business. You can also factor all or part of your invoices with the factoring company. You cannot only handle all your expenses immediately but can also take in new hauls, which otherwise would not have been possible due to lack of ready funds.