Did you know that freight trucking is expected to comprise 78% of all freight deliveries by 2040? In fact, for that very reason, many aspiring business owners venture into the freight industry because there are so many opportunities for growth.
While the trucking industry is lucrative, it’s also capital intensive. What this means is, entrepreneurs in the trucking industry are constantly looking for ways to finance their business operations. Fortunately, there is a viable solution called factoring for trucking that is a valuable financial resource for freight forwarding companies.
Freight factoring (also known as trucking factoring) is a form of financing that enables trucking companies to trade in their pending invoices for immediate cash. Trucking companies often use freight factoring to bridge cash flow gaps as they wait for shippers or freight brokers to pay their dues. Factoring companies typically pay 80% to 90% of your total invoice value up front. They will then remit the remaining balance (minus a small transaction fee) to you once your customer fully pays their invoice.
If you have a less than desirable credit history, factoring for trucking is a great way for you to secure financing. Unlike traditional loans, the qualifications of invoice factoring are based on the creditworthiness of your customers – not yours. If you have bad credit, invoice factoring may be your most affordable financing option. Check it out:
5 Steps in Factoring for Trucking Businesses
The entire freight factoring process can be summarized in five simple steps:
1. Send an Invoice to Your Customer
Before you can take on freight factoring, you need to send an invoice to your customers.
2. Submit Your Invoices to Your Chosen Factoring Company
You can choose between a large-volume factoring and low-volume factoring. With a larger volume factoring, you need to sell and assign all of your invoices to the factoring company. On the other hand, low-volume factoring is structured similarly to a line of credit where you have the option of selecting which invoices you want to sell.
3. The Factoring Company Pays Your Invoices
As soon as the factoring company approves your application, they will immediately pay you a percentage of your total invoice value, which is generally between 80% to 85% of the total value of your invoices.
4. Your Clients Remit Payment to the Factoring Company
Instead of sending you the payments, your customers pay their invoices directly to the trucking factoring company. However, there are low-volume factoring companies which allow you to collect payments from your customers as long as you consistently make regular monthly payments to them.
5. The Factoring Company Forwards the Remaining Invoice Balance to You
When your customers pay the balance of their invoice, the factoring company will immediately forward you the remainder – minus a small fee for services rendered.
This is how invoice factoring generally operates on behalf of a trucking business. However, expect to see some minor differences depending on the volume factoring you choose. The terms and conditions of your invoice financing transactions depend on a number of different factors. It’s best to speak with our lending expert from SMB Compass to get the exact details surrounding factoring for trucking.
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