Cash flow is important for any new owner of a trucking business. Plus, costs can be high and it can be difficult to keep up with bills during the first two years of operation.
As with any business, trucking companies have several options to avoid financial difficulties or manage their cash flow. A trucking company can get a loan, use credit cards or most commonly, use an unsecured loan. truck factoring company.
What is factoring?
You would buy invoices from other companies at a discounted rate if you were a company that factored. Factoring has proven to be the most effective way for businesses to maintain their cash flow. Businesses accept that they must pay the factoring firm to maintain a high cash flow. They are willing to do this in exchange for their invoices being paid instantly.
Why not just get a loan?
Small business loans are available from many banks. When a new small business is starting out, it’s not uncommon for them to receive a loan up to $600,000 at first. A business owner with good credit is likely to receive a lower interest rate for a small-business loan than if they used a credit card.
Small business loans are often difficult to secure. You may be required to provide collateral and will only qualify for a small business loan if your credit is good. The banks prefer to lend to well-established companies.
Late payment fees and high interest rates are common with credit cards. You may find it difficult to keep up with the credit card payments and interest rates if you use a credit cards in order to avoid paying late.
You will never need to worry about not paying your factoring company on time. A factoring firm buys your invoices and pays your clients. You may have to wait years before you can pay back a bank loan. You may owe thousands in debt if your business fails.
A factoring company will buy your invoices, one by one. It is not necessary to maintain a long-term relationship. You can sell as many or few invoices as desired.
How Factoring Work
Factoring is a simple concept. As a business, you simply sign up with the factoring company and they will buy a certain number of your invoices at a discounted price. In most cases, you will receive money immediately from the factoring firm for these invoices. Factoring companies will receive their invoices’ money when your customers pay their bills.
Recourse and nonrecourse
The two main types of factoring are recourse and non-recourse.
- If one of your customers does not pay, a non-recourse firm will take on the risk.
- A recourse-factoring company may require that you pay a bill if a client does not pay on time.
Factoring with recourse is much easier to obtain than factoring without recourse. When you go through recourse companies, it is important to check your client and their credit. Always work with non-recourse companies.
Factoring: Qualifications
A company will not buy your debt unless they know something about you. They will check the credit of the business and its owners.
Credit checks will be done on your clients by a non-recourse firm. Even a recourse firm will want to check your and your client’s financial solvency.
You should try to do business with non-recourse companies if possible. They are less risky for you. If you are unable to get a non recourse factoring company to purchase your bills, you might want to consider other options to solve your problem.
What to look for in a Factoring Company
There is no official body that regulates the factoring business, but there are organisations of professionals who supervise their members.
A factoring company may join multiple professional organisations. If you are a business seeking factoring services, it is important to find a company who belongs to the International Factoring Association You can also join a similar group.
Some factoring companies have a monthly minimum amount of invoices that you must sell. It is not a good business decision to do business with a factoring company. You may end up losing more money.
A reputable factoring firm will never charge set-up charges. A dedicated account manager should be assigned to you. You can contact them whenever you need help.
You can stay on top of all your bills with truck factoring. You will be able to get the cash flow You will need to pay your bills so that you can focus on finding clients and hiring drivers.
