The United States is home to one of the world’s largest networks of manufacturing, and American factories and farms are producing vast quantities of foodstuff, furniture, car parts, computers, and even kids’ toys and cosmetics year round. Of course, all of these goods have to be moved around, and producers will hire freight delivery companies to move all of these goods to warehouses, retailers, and more. Some larger freight companies offer trains, airplanes, or even ships to deliver huge sets of cargo, but most American businesses today are small, including many small carrier companies. These smaller-end carriers offer modest but hard-working fleets of trucks for delivering goods across American roads, and Canada to the north does much of the same. In fact, a large amount of U.S.-Canadian trading is done at the land border with trucks. However, cash flow may be an issue for these American or Canadian carriers, and this is why freight factoring companies are around: to provide invoice funding for those client carriers. Overall, freight invoice factoring companies can offer a lot for client carriers, and those freight invoice factoring services may even save a small freight company from bankruptcy. How?
Cash Flow in a Small Company
Freight bill factoring is important for smaller carriers across the United States and Canada, and factoring financing is thus a large business. After all, a smaller freight carrier company doesn’t have the deep cash reserves that a larger company might have, and this means that cash flow and timing are a delicate operation. Like any carrier, these smaller carriers make their profits when they charge invoices to their shipping clients, but even in the best of times, those invoices may be paid in 30 to 60 days’ time, and of course, some invoices are paid late. To put it simply, smaller American and Canadian freight companies can’t afford to wait that long for the invoice payments, since they have their own expenses in the meantime. Like their larger cousins, small freight companies have expenses such as truck maintenance and fuel, crew salaries, and marketing campaigns, and this can be a real threat to their cash flow if invoices are late. In fact, a small freight company may face bankruptcy waiting 60 days for an invoice payment to arrive, so freight invoice factoring can make all the difference. Freight invoice factoring is a type of business loan, and carriers with good credit can make the most of it.
What Invoice Factoring Entails
After a carrier company has charged an invoice to its customer, it may now turn to freight invoice factoring in its area and contact a number of invoice factoring companies. Once the carrier finds a good factoring company and hires it, they can conduct business. First, the invoice factoring company will acquire the right to collect 100% of the outstanding invoice’s value, then provide a substantial loan to the carrier company based on a percentage of the invoice’s total value. This up-front loan may be as much as 70-80% of the invoice’s total value, possibly a bit more (the percentage will vary from one case to another). The idea is that the carrier is getting cash right away so that it can pay off its own expenses while waiting for the outstanding invoice funds to arrive, and as mentioned earlier, smaller companies simply can’t wait that long. This up-front money smooths out the cash flow and can prevent total bankruptcy during that wait time.
Once the invoice is indeed paid by the customer (late or not), the factoring financing company will receive 100% of the funds as arranged earlier. Once the money comes in, the factoring company will give the carrier another, smaller percentage of the invoice’s total value, often adding up to 90-95% of the total value (this also may vary), but never 100%. The invoice factoring company will keep the difference as its payment for the loan and the source of its profit. Meanwhile, the carrier company has effectively sacrificed 2-5% or so of the invoice’s value in exchange for the up-front loans, and in most cases, this will certainly be worth it. A carrier with good business credit (distinct from personal credit) is more likely to gain the attention and trust of factoring services nearby.