Everything You Need to Know About Trucking Invoice Factoring

When it comes to managing a trucking operation with the utmost efficiency, you have your work cut out for you. From maintaining your fleet to digitizing your paperwork, you need to take care of various aspects at once. Any failure to meet these requirements results in the subpar quality of services and gives an edge to your competitors.

However, funding these ongoing requirements doesn’t come cheap. You need to continually invest a large portion of your earnings in covering these costs. But when your invoices have a typical fulfillment range of 30-90 days, this can also create consistent cash flow.

That’s precisely where trucking invoice factoring can help. By turning to this mechanism, you can quickly get paid for your bills of lading (BOLs) long before they become due. This ensures smooth sailing for your operations in the face of constant investments and general expenses.

To learn how a trucking factoring company can help your operations/invoice factoring works for trucking companies, here’s a lowdown on the method as well as all its essential aspects.

What is Invoice Factoring for Trucking Companies?

Invoice factoring refers to the process where a business sells or “factors” its account receivables to a specialized company. When these invoice factoring firms buy these invoices, they pay the business a portion of its receivable amount in cash. This transaction takes place against a set service fee that is decided between the business and the invoicing company.

While the business that has sold its invoice immediately receives 80-90 percent of its invoice value right away, the factoring company recovers its full amount when the actual client pays the invoice. The business also receives the remaining amount of its invoice value when the respective client fulfills the invoice.

This mechanism is mutually beneficial for both parties involved. As such, the business selling its account receivables reaps the rewards of a reduced timeline to its payment; whereas, the factoring company advantages from the fee that it charges for its services.

When it comes to trucking companies, this invoice factoring works the same way. By reaching out to a factoring company that buys invoices from trucking operations/trucking factoring companies, your logistics or freight business can sell its own unpaid invoices and get paid well before their respective due dates.

Since trucking BOLs are notorious for how long they can become due, factoring trucking invoices is one of the most popular solutions for any business that operates in this industry. Whether you want to keep cash at hand or need to cover an immediate need, this method allows you to turn your future receivables into direct funding.

What Are the Benefits for Invoice Factoring for Trucking Companies?

Since invoice factoring allows you to cut down the time between the delivery of your work and its associated compensation, it makes sure that you don’t have to brave the winds of consistent expenses without any support.

As a result, you don’t have to think twice about funding your critical operations, covering for essential expenses, or investing in viable opportunities. No matter if your plans relate to regular maintenance or ambitious expansion, you can count upon invoice factoring to close the gap between your work’s completion and its related reimbursement.

Resolve Cash Flow Issues

As mentioned above, the biggest advantage of trucking invoice factoring is the resolution of cash flow problems. Whether your company accounts are running low on liquid assets or if you don’t want to pay for operational costs out of pocket, selling your invoices can help you fulfill your expenses without chipping away on your own savings. In many cases, it can keep you from shutting your operations down altogether.

Continue Critical Maintenance and Repair

Since running a trucking operation requires you to fund regular inspection, maintenance, and repairs of your fleet, you need to have a constant supply of funds at hand. If the delayed fulfillment of your BOLs is keeping you from meeting this need, selling your invoices can resolve this problem in an instant. It allows you to make sure that your fleet is in optimal condition and your drivers are operating with minimal safety risks.

Avoid Payroll Disruptions

Speaking of your employees, there can be times where your business depends on its consistent earnings to maintain a regular flow of all paychecks and benefits. If your invoices go unpaid for 1-3 months, this can often cause disruptions in your payroll. At such times, you can easily get your required funding by selling your invoices to a reliable factoring company instead. This helps you ensure a safety net for your employees through your future receivables.

Execute Expansion Plans

If your trucking company is eyeing bigger contracts but needs a larger infrastructure to obtain them, a shortage of cash can often hinder these plans. In these scenarios, you can turn to invoice factoring to secure your required funding. This makes sure that you can scale your business at a steady and consistent pace without letting go of your goals for expansion. This particular aspect is especially helpful for those trucking operations that are in a fast-growth phase.

Steer Clear of Unfriendly Funding Mechanisms

As you wait for your invoices to get fulfilled, you can run into a variety of issues that require immediate funding. In such situations, the thought of securing funding from investors or taking out expensive loans can often come to mind. But since both of these methods take a hit on your future profits, they are not favorable for a budding business. If you find yourself in such a situation, factoring your invoices can help you obtain the cash you need.

What Nuances Should You Keep in Mind?

Due to the benefits above, trucking invoice factoring remains a consistently beneficial way to fund your operations. However, the mechanism comes with a few intricacies. If your trucking business wants to take full advantage of invoice factoring, you must keep these points in mind.

Different Types of Factoring

When shopping around for invoice factoring services, you are bound to stumble upon two types of solutions. The first is resource factoring, while the other one is called non-recourse factoring.

In recourse factoring, your business can receive the agreed-upon cash payment against its account receivables. However, it is held responsible for reimbursing the payment even if your respective client fails to fulfill their invoice.

In non-recourse factoring, your business gets the set compensation according to your arrangement. But in this mechanism, you are also free of any liability even if your clients default or remain unable to pay their invoices in select scenarios.

Apart from the liability factor, the other main differences between both mechanisms are their overall fee and accessibility. Recourse factoring comes at a cheaper rate and is typically offered by many factoring companies. Whereas, non-recourse factoring comes at a higher fee and only comes through select firms due to its structure.

Overall Factoring Fee

Nearly all factoring companies offer 80-90 percent of the total value of your invoice. But the 10 percent difference can often mean the world for your business. Additionally, these companies usually deliver their solutions at different rates or service fees. This particular mechanism sets various providers apart and makes for the primary distinctions seen between these factoring companies.

To make sure that you are getting the best deal, you need to look into several companies and compare their offerings. The information is not always available right away. But you can reach out to different trucking invoice factoring firms to take their respective offers and quotes.

This process can take some time. However, it ensures that you can make an informed decision regarding your invoice factoring. As a result, you don’t have to pay sky-high prices to access this funding mechanism, especially at a compromised cash value for your invoices.

Reliability of the Factoring Company

Another major factor that needs your attention is the reliability of the factoring company. While you can find many invoice factoring companies in the trucking segment, not everyone offers equally credible services. Some companies crop up out of nowhere, while others offer substandard solutions. With that being said, some of them do offer exceptional services in all segments.

That is why it’s critical that you look into this factor and make it a point to compare different providers in terms of their industry reputation and reviews. This makes sure that you are only dealing with those companies that hold their own in terms of overall credibility.

Learning about the factoring company’s experience, expertise, and most of all, its terms of service are critical in this aspect. When you pay attention to these points, you can rest assured to enter a beneficial agreement and obtain your required funding without any issues.

By keeping these particular aspects in mind, you can ensure to run your trucking operation without worrying about your cash flow and critical expenses. The key is to find a trustworthy invoicing company that holds up to all of your expectations.

Dragan Sutevski

Posted by Dragan Sutevski

Dragan Sutevski is a founder and CEO of Sutevski Consulting, creating business excellence through innovative thinking. Get more from Dragan on Twitter. Contact Dragan