Choosing trucking factoring as a financing solution does not mean that the business is experiencing financial problems. Often a business will be doing well financially but will be operating in a business sector that the banks consider high risk. This is especially true in trucking as banks consider the industry to be volatile and unstable. Most transportation companies find it difficult to get financing – even though they may be showing healthy profits and balance sheets. They turned to factoring to keep their cash flow flexible and their businesses growing.
Having strong and flexible cash flow is one of the most important aspects of growing and maintaining a strong business. Businesses in North America often turn to factoring for trucking companies to help them free up and manage their cash flow.
Why do I have the sales but I am lacking cash flow?
It’s not unusual for most businesses, at some time or another, to find that the available cash within their business isn’t keeping up with demand. Some common reasons for why this happens are:
- The carrier delivers to clients who demand payment terms of 30, 45, or 60 days, sometimes as much as 90 days. Often the carrier doesn’t have the luxury of these same timelines for paying operating costs. That’s especially true within the trucking industry where driver wages and over-the-road expenses are a large portion of costs.
- The business is a high growth company that must constantly feed cash back into operations to fuel growth.
- The business is in start-up phase and is still building its client base and, therefore, a consistent revenue flow.
- The business has experienced a financial setback or is going through a transition.
Opting for invoice factoring as a financing solution does not mean that the trucking business is experiencing financial problems. Often a business will be doing well financially but will be operating in a business sector that the banks consider high risk. The trucking industry is a clear example of this as the commercial banking system considers trucking to be volatile and unstable. For this reason, a greater number of trucking companies are turning to invoice factoring to keep their cash flow flexible and their businesses growing.
In these and other situations, factoring helps to free up cash flow by providing businesses with financing based on their accounts receivable. Instead of waiting the 30 to 90 days for a client to pay an outstanding invoice, with factoring, a business gets its cash upfront while the factoring company waits for the customer to pay. How exactly is that different from getting financing from the bank? In the simplest terms, banks mainly look at history (credit and financial history) when determining whether a business qualifies for financing. On the other hand, a factoring company looks at your company’s accounts receivable to determine if you qualify for financing. The factoring company also bases its decision on the creditworthiness of your customer, not that of your business.
Aside from the peace of mind of not having to constantly worry about cash flow, factoring offers many benefits. Trucking businesses use factoring to free up cash flow to in order to – fuel growth by filling more and larger orders for clients; pay for payroll and operating expenses; purchase or upgrade trucking equipment; and take advantage of early payment or bulk purchase discounts.
Factoring might be the right solution for your trucking business. Learn more about invoice factoring and how it might be able to help your business with its cash flow needs.