The United States is home to a vast network of factories that produce a dazzling variety of finished goods, ranging from furniture to books to cars to kids’ toys and more. American farms, meanwhile, produce vast amounts of foodstuffs, ranging from apple orchards in the Northeast to the wheat and corn fields of the Midwest to the vineyards of California. But it’s not enough to produce these goods; a robust transportation network is in place, and it can deliver goods anywhere across the United States and internationally, too. This means that the modern American transportation network gets a lot of business, and many carrier companies (most of them on the small side) are working hard to deliver all these goods for their shipper customers. Such small carriers often work with third parties, such as freight brokers and transportation factoring companies. These factoring financing companies such as Advance Business Capital and its peers offer transportation factoring for carriers who need to smooth out their cash flow.
Modern American Carrier Companies
The clients of these transportation factoring services are the many small and medium sized carrier companies working across the United States. Invoice funding is done when a carrier has charged an invoice to its shipper customer and is waiting for that money. Even if these invoices are paid on time, the carrier company may expect a wait time of 60-90 days for its shipper customer to make that payment, and of course some payments are made late. Carriers need transportation factoring to smooth out their cash flow, or they may face bankruptcy.
That’s not all. Carrier companies also work with freight brokers, who are third parties capable of arranging a deal between a shipper who needs their goods delivered and a carrier company looking for work. This does a lot of good, but the carrier may pay a fee for that service, and carriers have other expenses such as crew salaries or truck maintenance to deal with in the meantime. Carriers have trucks, trains, or planes in their fleets for shipper customers to use, but those vehicles are typically being paid off and have fuel and maintenance costs to contend with as well. Small carrier companies don’t have deep cash reserves to fall back on while waiting for the invoice payment to arrive, so transportation factoring services will intervene.
Working With Factoring Services
After a carrier has started a delivery for its shipper customer, it will charge an invoice. While waiting a few months for that invoice to be paid, the carrier may turn to transportation factoring companies in its area and look for a business loan. If the carrier’s business credit is good enough, a factoring company may agree to a deal and provide a loan to that client carrier.
Once this deal is made, the factoring company will purchase the right to collect 100% of the invoice’s total value when the payment is made. In the meantime, the factoring company will provide the carrier client with large, up-front loan based on 70-80% of the invoice’s value or so. This timely payment is critical for the carrier client, which will probably not have enough of its own money to cover its expenses during this time. With that advance payment made by the factoring service, the carrier will be able to handle its own expenses such as vehicle payments, truck maintenance or refueling, staff salaries, and advertising costs, among others. This smooths out the cash flow and may help prevent bankruptcy.
Once the shipper customer makes the invoice payment in full, the factoring company will receive it all, as arranged earlier. Now, the factoring company will give another, smaller payment to the carrier client, and these loans may add up to 95-98% of the invoice’s total value or so (but not 100%). The difference is kept by the factoring company, as a fee for its services and the source of its profits. This will mean that the carrier client will exchange around 2-5% of the invoice’s total value for the security of getting up-front loans to cover its expenses while waiting for that invoice. For smaller carriers with thin cash reserves, this is often a good deal to take, and it can help prevent the threat of bankruptcy.