How to Finance a Growing Transportation and Logistics Company
Do you own a trucking company or trucking brokerage? Read this article to learn how freight factoring can help you finance your company.
The logistics and transportation industry plays an important role as the backbone of the economy. Even in recessionary times, many companies in this industry can do very well if managed properly. One of the main challenges of transportation though is that it can be very cash intensive. Trucking and logistics companies have to pay for drivers, trucks, repairs and fuel. All of these expenses tend to add up very quickly. To complicate matters, most shippers will pay their invoices in 30 to 60 days. This creates a cash flow problem for many companies since they have immediate expenses but a delayed income.
If the company has a big enough capital reserve, this cash flow gap is not a problem. This is seldom the case though and most transportation companies try to get business financing to help them grow. Although business loans and other forms of financing are available to large companies, small companies don’t usually qualify for these products.
One alternative solution to this problem that works very well is frieght bill factoring. Basically, it eliminates the payment wait and provides you with the funding to pay your business expenses as you incur them. This gives you the necessary breathing room to pay expenses while you are waiting for your clients to pay their invoices.
Transportation factoring is that is relatively easy to obtain – partly because of how the transaction is structured. Most factoring companies don’t lend money per se. Rather they buy your invoice at a small discount, providing an upfront payment. You usually get around 90% (this varies) upfront, and the reminder 10% (less the discount) once your client pays. Since the transaction is structured as a purchase rather than a business loan, the criteria for qualifying are different. For example, since the factoring company is actually buying your invoices from you, their biggest concern is the credit worthiness of your client. This means that small companies with a good list of clients can usually get this form of business financing.
The cost of freight bill factoring is usually based on the credit worthiness of your client, the length of time that the invoice is outstanding and your monthly sales volume. Obviously, companies with really good clients, high volumes and shorter invoice outstanding times will have lower costs.
By _Alicja_ from Pixabay