Case Study: Freight Bill Factoring

freight bill factoring

One of the issues that plagues trucking companies – especially smaller companies and start-up companies – is that of cash flow. You get a job, you do the job, you invoice the client, and you wait 30 to 60 days for the invoice to be paid. Meanwhile, as you wait for payment, supplies and fuel need to be bought and truck drivers need to be paid. This can lead to a great deal of stress.

Freight bill factoring can actually help ease your cash flow problems. Freight bill factoring works when a third party buys your invoice and then services it. For example, if you have an invoice out to another business for $5,000, you may not get that money for a month – or even two. But you still need to buy fuel for your trucks. With freight bill factoring, a factoring company (called a factor) buys the invoice from you for a (usually) small fee.

Here’s how it might work with the above example: The factor offers to buy the invoice at a 2% fee. 2% of $5,000 is $100. So you would actually get $4,900 in cash. Most factors pay between 75% and 90% up front, so you would get between $3,675 and $4,410 immediately. The rest of the money would be delivered to you when the factor collects on the invoice. You have cash up front to help take care of every day expenses that keep your trucking company running.

Case Study: Example of how factoring helped one trucking company

Bill T. owns a small trucking company in Idaho. He started about five years ago servicing the Mountain West area. Unfortunately, trucking expenses can be large. He wanted to buy another truck for his fleet. He went to the bank that gave him a small start-up loan, but his business wasn’t around long enough, and the credit market crunch was just beginning. No one else would give him a loan, either. Bill thought he was doomed. Without another truck, he couldn’t expand his business and service more clients.

Bill found out about freight bill factoring. He discovered that he good turn over the invoices of credit-worthy clients for upfront cash – without reference to his business credit history or rating. He was able to factor invoices for his most recent five jobs, totaling about $30,000. Bill used some of that money for a down payment on a truck to add to his fleet. With his substantial down payment, he was able to qualify for a loan on the truck. Now he can take on additional clients, and his base is expanding.

How freight bill factoring helps trucking companies

Because there are so many expenses associated with trucking companies, and because so many of them are new, or small (especially regional companies), it can be difficult to get financing. The present economic climate does not help, either. Loans are hard to come by. But just because the capital is not flowing, does not mean there are not other expenses. Freight bill factoring helps trucking companies keep a solid cash flow, so that they can stay in business.

Because freight bill factors buy invoices, it is more important that your clients have good credit than that your company has good credit. In fact, even if you have poor credit or no credit, as long as you have clients who are low risk, it is possible to participate in freight bill factoring.

Additionally, the process is faster. The factor can do a check on your clients, and decide which invoices to factor. Then, you can get your money as early as the next day. This is much better than waiting weeks – or even months – for money from a bank. Plus, even if you do get approved, you have to apply for another loan when you need another infusion of capital. With freight bill factoring, once a client invoice has proved low risk, most factors are more than happy to buy additional invoices regarding that client. No need to re-apply. The process becomes very streamlined, and you get a steady cash flow stream.

If you are concerned about capital and cash flow, you can ease your situation and get the money you need to maintain and grow your business through freight bill factoring.