When looking to start a trucking business, it’s crucial to have a strong cash flow. However, financing can be difficult for new small business owners to obtain due to the requirements of a traditional loan: number of years in business, strong credit history, etc. This is why many business owners, specifically those in the trucking industry, seek the help of a factoring company.
What is Invoice Factoring?
Invoice factoring is different from the traditional loan options most people are familiar with. Unlike business loans, invoice factoring allows you to sell your pending invoices for immediate funding. This means that you wouldn’t have to wait for 30, 60, or 90 days to receive the money owed to you by your customers.
The invoice financing process starts by selling our invoices to a factoring company that will pay you a lump sum – usually between 80% and 90% of the total invoice value. Once the lending company sends the money to your bank account, you can immediately use it for working capital.
Your customers will pay their dues to the factoring company, so you don’t have to collect payments. After your customers pay, the factoring company will send you the remaining balance, minus a fee. The factoring fee is often a percentage of the invoice amount.
This is particularly helpful for companies that experience cash flow gaps because of late invoice payments. With invoice financing, you can get the money owed to you in a matter of days by factoring your invoices.
Benefits of a Factoring Company for Trucking Businesses
Invoice factoring is an ideal financing option for small trucking businesses because, unlike traditional bank loans, factoring companies don’t take months to fund your business. They can get you started right away to give you fast access to cash when you need it.
How can invoice factoring help your trucking business succeed? Here are five benefits to note:
1. Works Well with New Businesses
Running a trucking business requires cash on hand to pay for fuel, vehicle maintenance, and other daily operating expenses. Startup companies may struggle to secure a bank loan, especially those with a poor credit history. Invoice factoring helps small businesses secure funding by having their invoices paid in advance. It’s technically not a loan, but an advance against your account receivables.
2. Keeping Track of Invoices
Keeping track of invoices and collecting payments can be a hassle, but with invoice factoring, the factoring companies do this work for you. You can receive the worth of your invoice upfront while the factoring company makes sure your client pays. It’s both convenient and efficient, saving you valuable time that can be better put toward running your business.
3. Fund Business Expansions
You have succeeded in starting your trucking business and now you’re looking to expand. Growth requires resources. You’ll need money to hire more workers, expand your space, and pay for gas, rigs, and repairs. Invoice factoring makes this possible by helping to bridge the gap between accounts payable and accounts receivable.
4. Avoid Debt
Invoice factoring allows you to grow your business without borrowing money. You’re simply getting paid in advance for the work you’ve already done (minus a small fee). Once you receive the funds, you don’t owe the lender anything.
5. Flexible Contract Terms
Invoice factoring companies offer the flexibility you look for in a lender: no long-term contracts and no limit to the number of unpaid invoices you can submit. Once you qualify, you’re free to submit as often as you’d like.
6. Instant Cash Flow
When applying for business loans from banks and other traditional lenders, it will often take months before you can be approved. Then, it will take additional time to receive the money. With invoice factoring, you’ll be able to access funds quickly, usually within 24 to 48 hours after approval. Although this depends on the lender you’re working with. This is a great option for companies that have short-term financing needs and cannot afford to wait weeks or months to receive cash.
Is Invoice Factoring a Good Choice for Your Business?
Business owners know all too well that there’s no one-size-fits-all when it comes to small business financing. What worked for another business, may not work for you.
Invoice financing is great for businesses that need money ASAP, have creditworthy customers with a history of paying invoices on time, and can afford the fees that come with factoring invoices. If these qualifications tick the boxes, you can apply for invoice factoring.
Even though invoice financing is beneficial to small business owners, it’s still important to weigh the pros and cons before you apply.