All That Is Involved In Freight Factoring
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. The freight companies still have other expenses to sort such as the maintenance cost of their vehicles, fuel cost, and the wages. Expenses such as the fuel cost cannot wait for other expenses within the freight company. That is the reason why the company must have a cash capital to attend to such expenses. Some of the trucking and shipping customers interrupt their cash flow because they have pending bills that have to be paid by their clients.
The problem of poor cash flow leads them to rely on the freight factor. Factoring, in other words, is a short-term loan that uses the invoice as the collateral. After the trucking or the transporting companies deliver their services to their customers they sell the invoice to the freight 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. Their prices are not the same for all clients but depends on the worth of the credit, the time of payment and the money to be factored. 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. You will only know if your company is eligible for the freight factoring after you put all the factors into consideration.
Ensure you deliver your services as per the specification of your customer and ensure they accept the services. Your transportation company can be qualified if you have proper insurance and have a motor carrier authority. The factoring company first makes sure that your customers have an excellent commercial credit and can pay the bill at the time they stipulate. Freight factoring companies do not work with companies that have legal issues like the tax problems. Before you get to choose a freight factoring company to work with you ought to check their pricing factor.
It is crucial to compare their application fees, their monthly minimums and their advance rate with other similar companies It is important if you find out what they do with the unpaid bills. Some of the freight factor companies would be responsible for all the risks. There are those that require their clients pay the invoice within a given period while others will ask them to exchange the paid invoices and with the unpaid ones.