Finding benefits factoring for a transportation company are very clear. Even though the economic pinch ended over a year ago and the economy is improving, most companies are still reluctant to provide business financing to transportation companies.
If you own a transportation business you can see the benefits of factoring because most transportation companies are cash flow intensive and need external financing to grow.
A major cash flow problem for transportation companies happens because customers typically pay their freight bills on Net 30 or Net 60 day terms.
However, the business needs immediate funds to cover driver payments, fuel, repairs and other business expenses. So the cash flow problem is created by having immediate expenses and delayed revenues. Initially, companies can cover that gap by using their own resources. Eventually these resources will run out, especially if the company is growing rapidly.
A Benefit of factoring to fix this problem is to use freight bill factoring, a form of financing that is designed for this specific cash flow problem. A freight factoring plan helpes the transportation company to get the equivalent of a quick pay. The transaction works by using an intermediary, called a factoring company, who buys the freight bill from the transportation company and pays for it immediately.
This enables the transportation company to get an immediate payment, while the factoring company holds the freight bill until it’s paid. The factoring fee for the service, varies based on how long it takes for the invoice to get paid, the financed volume and your customers commercial credit worthiness.
A major Benefit of factoring over other cash flow strategies is that it’s much easier to obtain than other forms of business financing. Since the factoring company is buying the invoice from your company, the most important requirement to qualify is to have solid customers. Apart from that, your company needs to be free of legal and tax problems.
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