What an Invoice Factoring Company Can Do
The manufacturing industry across the United States is enormous, and there are many farms, too. Factories, farms, and warehouses need a way to transport goods of all kinds, and often, it calls to small carrier firms to deliver such cargo by truck. Not all companies can afford cargo jets or freight trains, but nearly all of them can afford a small fleet of semi trucks. While a freight broker firm can help a carrier company find a client, there is another third party that can be very helpful: business factoring companies. Such business factoring companies can offer invoice loans, but new business owners may ask: what is an invoice advance loan, and what is a factoring company, anyway? In short, business factoring companies can be thought of us banks, and invoice funding is vital for small carrier companies that do not have deep cash reserves to rely on during work.
Modern Carrier Companies
The United States is home to around 12 million trucks, train cars, and other vessels that can move goods, including fleets of semi trucks. Over 5.9 million commercial motor vehicles are at work across the nation, according to the Federal Carrier Safety Administration, and they are employed at countless small and large carrier companies alike. The problem is that a small carrier firm may not have much cash flow while waiting for an invoice payment to arrive for a customer. Even in ideal circumstances, a shipper client may take 60 to 90 days to fully pay an invoice for services rendered, and often, clients are late delivering those payments. A carrier business might go bankrupt if it has to keep waiting for that invoice, since it will have expenses such as paying off truck loans, funding everyone’s wages and salaries, fuel, maintenance, marketing expenses, and more. But rather than trying to borrow cash from big banks (they’d probably get rejected anyway), these small truck carrier companies can turn to local business factoring companies for help and smooth out their cash flow.
Working With Business Factoring Companies
Larger and wealthier carrier firms might not need the services of business factoring companies, but smaller carriers certainly will, and it helps to have a good business credit score. An invoice factoring company might not have ultra-strict terms like a big bank, but such a company will still prefer clients who have good business and personal credit scores (around 45% of small business owners aren’t even familiar with the concept of business credit scores). Once a carrier firm is waiting for an invoice payment, the owner can contact local business factoring companies and set up a deal.
The invoice factoring company will purchase the right to collect 100% of the outstanding invoice’s value when it is paid, and up front, that factoring company will give the carrier client around 70-80% of the invoice’s value in cash. Speed is the main factor here, since a carrier firm urgently needs money to cover its various expenses and smooth out its cash flow while waiting for that invoice payment from the customer. This keeps the carrier company afloat.
Once the shipper client does pay the full invoice value, the factoring company will collect it all, as agreed upon earlier. Now, the factoring firm will give the carrier client another, smaller chunk of money, and altogether, the carrier company may receive around 95-98% of the invoice’s value, but not 100%. Instead, the invoice factoring firm will keep the remaining 2-5% as payment for services rendered, and that is its source of income. This means that the carrier company will sacrifice a small percentage of the invoice in exchange for speedy money up front, and in most cases, that is an exchange worth making. A carrier company’s owner should use discretion when making loans and spending money ahead of time, but overall, trends suggest that small firms can make regular use of business factoring companies while they are growing. Eventually, a carrier firm may become large enough to have less or no need for business factoring companies any longer.