The current economic environment has been particularly tough for trucking companies and freight brokers. Winning client accounts is harder than ever. Likewise, keeping clients requires work very hard to meet their ever changing demands. To complicate matters, few clients pay their invoices quickly. Most commercial clients take anywhere from 30 to 60 days to pay their freight bills. This puts a considerable stress on your cash flow since you still need to pay for drivers, fuel and repairs. Few companies can actually afford to wait and tend to run into working capital problems.
There are two common ways to deal with this cash flow problem. The simple solution is to ask clients for a quick pay. Unfortunately, the simple solution is not easy at all. Clients have the upper hand and will usually demand to 30 day terms or threaten to take their business elsewhere. The second solution involves using business financing to close the gap in the cash flow. The problem with this strategy is that business loans are not easy to obtain in this environment. Most institutions will only make a business loan to a company that has a solid multi-year growth record, outstanding financials, substantial assets and a well seasoned management team. Few transportation companies can meet all these criteria.
There is a better way to solve the problem by using a solution that provides the equivalent of a quick payment. It's called freight bill factoring. It works by using a financial intermediary called a factoring company, who advances funds against your freight bills. They settle the transaction once your client actually pays the bill. One advantage of factoring is that it provides the equivalent of a quick payment, without requiring your clients to pay faster. This makes it easy to integrate in most organizations.
Freight factoring is easier to get than other forms of financing. To qualify for this type of financing, your business must have solid commercial clients, be free of lawsuits and encumbrances and have good growth and stability potential.
