Invoice Factoring:
It’s Not Like a Bank Loan

Invoice factoring is now a mainstream financial option for trucking businesses. Factoring for trucking is seeing an increase in popularity for businesses in North America as a different option to bank loans. The nature of the factoring model itself is attracting truck business owners who are looking to free up cash flow for their transportation company.

Invoice Factoring vs. Bank Loans

In addition to being faster and having considerably less red tape than applying for a bank loan, there are three main differences between obtaining financing through factoring and obtaining financing through a bank loan:

  • Qualifying for factoring is based on your customers’ credit score

    One of the main differences between factoring and applying for a business loan with the bank is how the bank determines your creditworthiness. When you apply for a business loan, your bank will base its decision on how creditworthy you and your business are. When qualifying for factoring, the decision is based only on the creditworthiness of the customers you are invoicing. For that reason, factoring is especially helpful for a business that’s already stretched its available credit, or to a newer business that has yet to build its credit history.

  • Factoring takes a different approach to what’s considered acceptable collateral

    When applying for a business loan, you’ll often be asked by the bank to put up collateral such as a building or piece of equipment. With invoice factoring, the freight bill sent to your client (i.e. your accounts receivables) becomes your collateral.

  • Factoring doesn’t require you to make loan payments

    Most business loans require regularly scheduled payments stretched over a specified period of time, such as monthly or bi-weekly. With factoring, you receive up to 100 per cent of the invoice amount within 24 hours of submitting your invoice to the factoring company. The factoring company then waits for your customer to pay the invoice (usually between 30 – 60 days). You make no payments, because your customer pays the factoring company directly.

There are a number of reasons or circumstances where a business owner will choose factoring as an alternative to traditional financing. A business may not qualify for traditional financing due to such things as:

  • an over-leveraged balance sheet or recent operating losses
  • a start-up company with no credit history
  • a high growth business that’s growing faster than its cash flow
  • a business in transition

Factoring might be the right solution for your business. Learn more about invoice factoring and how it might be able to help your business with its cash flow needs.  

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