The United States is home to a vast infrastructure of manufacturing and farming, producing everything from livestock and grain to books, furniture, cars, and industrial chemicals. But it’s not enough to simply make those things; a vast transportation network is responsible for moving all those goods across the United States and to foreign nations by land, sea, and air. Within the United States, a lot of transport is done by rail car, airplanes (often for expedited shipping), and most of all, trucks. Many goods in the United States are delivered by truck, since these vehicles are easy for carrier companies to afford and they can carry goods nearly anywhere, not bound by airports or railways. Trucks sometimes come in a variety of models, such as reefers to carry cold items or tankers to carry liquids such as liquids nitrogen.
Running a truck carrier company involves some expenses, and a carrier company earns its income by charging invoices to its shipper clients. The problem is that these invoices may take time to pay, even if they are paid on time (and the often are not). A carrier company, often the smaller ones, simply can’t afford to wait for that invoice money to come in, so factoring financing firms may help. Factoring financing is when a freight bill factoring company or firm steps in as a third party between the shipper and carrier, and freight factoring services like these can be quite helpful. What is there to know about factoring financing?
Running a Truck Carrier Company
Business factoring services are in high demand among companies that charge invoices, such as truck carrier companies. The Federal Motor Carrier Safety Administration has stated that an estimated 5.9 million commercial motor vehicle drivers are working today, and they are employed mainly by the countless small truck carrier companies found across the United States. A few are larger, but most are on the smaller side and will have modest truck fleets and only a shallow cash reserve on hand. This is why factoring financing is so important.
When a carrier delivers goods for a shipper client, that carrier will charge an invoice for services rendered. But even an on-time invoice may take 60-90 days to arrive, and the carrier company will have its own expenses until then. Truck maintenance, paying off purchased trucks, staff salaries, fuel, and more must be paid, and a smaller carrier doesn’t have the cash reserves needed to cover all that. A small carrier company might even face bankruptcy unless it gets an invoice advance loan. Fortunately, many firms may offer factoring financing services to business clients who have good credit.
Getting That Loan
Factoring financing firms are money lenders who work with companies such as truck carriers and others that charge invoices to clients. To begin with, once the carrier makes a deal with a factoring company, that factoring company will purchase the right to collect 100% of the outstanding invoice’s value when the customer pays it. In the meantime, the factoring firm will give th4e carrier company a large, up-front loan based on a percentage of the invoice’s value (often 70-80% or so). This advance loan is critical, as it allows the carrier company to handle its many expenses while waiting for the invoice payment to arrive.
Once the carrier company’s customer does pay the invoice in full, the factoring company will collect 100% of its value, as agreed upon later. With the debt collected, the factoring company will now give the carrier client another, smaller loan, and the total loans may add up to around 95-98% of the invoice’s value, but never a full 100%. Instead, the remaining 2-5% of the invoice’s value is kept by the factoring company as a fee for services rendered, and this doubles as its revenue. This means that the carrier client is sacrificing 2-5% of the invoice’s total value in exchange for the convenient timing of getting a large up-front loan right away from the factoring firm. In most cases, when a carrier has only shallow cash reserves to fall back on, this is a fair and practical exchange to make. Having a good business credit score is a good way to get better terms on that loan, too.