How Freight Factoring Works
Freight companies have issues with the cash flow because most of their customers do not pay their debts in time. They always wait for their clients to come on their own will to pay their money. Freight companies have many expenses like the fuel cost, maintenance cost, and paying the wages. Unlike the cost of wages which can wait, the fuel cost must be settled on time. That is the reason why the company must have a cash capital to attend to such expenses. Some of the trucking and shipping organizations have interrupted cash flows as they wait for customers to pay bills for their services.
Poor cash flow within a company make a company sought help from the freight factoring. Factoring is a short-term loan that has the invoice as a collateral. When the trucking company delivers goods to their clients they sell the invoice to the freight factoring company. The freight company after buying the invoices they pay the shipping company in installments. They pay the full invoice amount when the company completes paying the bill.
The freight factoring company gain from a certain percentage of the invoice. The factoring charges vary depending on factors like the worth of the credit of the customer, credit, the amount to be factored and the average time the invoices are paid. There are some factors that qualify a business for the freight factoring. Some of the factors include the business cash flow, the amount of money owed to you in the receivable accounts, the terms of payments of each account and how reliable and loyal your customers are in paying bills. After putting all the factors into consideration then you can know if your company is qualified for the freight factoring.
Ensure you deliver your services as per the specification of your customer and ensure they accept the services. The freight factoring companies helps companies that have insurance cover and a motor carrier authority. The factoring company must ensure that your clients have great commercial credit to affirm that they will settle the bills in a specified period after receiving the invoice. They only assist those companies that do not have legal problems such as tax issues. When selecting a factoring company to consider their prices before you approach them.
You may want to compare their application fees, their monthly minimums and their advance rates with other factoring companies. Inquire how they deal with that bill that is not paid. Some of the freight factor companies would be responsible for all the risks. Others require their clients to pay them is the invoice is unpaid within the specified time while some will ask you to replace the unpaid invoices of the non-paying customers with the ones from the paying customers.