If you run a transportation company, you know that how you make money is by building your client list, sending out invoices for the amount of money they owe for the job you and your colleagues completed, and eventually having your clients pay out those invoices.
While clients are – of course – responsible and make sure to pay you the amount of the outstanding invoice owed, they are typically given several months to complete the payment and close out the outstanding invoice. This can lead to some severe financial hang-ups on your end that have you scrounging for money, cutting budgets, and not focusing on your business’s future and further growth.
Though you and your company could feasibly ask your clients to close out their invoices faster, this could lead to a fracture in the professional relationship that you have worked hard to build, further impacting your company’s growth. For that reason, it is pretty standard that transportation companies will seek financing and funding from outside the invoices that they are owed.
While this can be a great help, it can also be quite frustrating to jump through the hoops and deal with the high interest rates that come with business loans when you have the money you need within your grasp!
That is why transportation companies, and really any business that depends on invoices for payment, often turn to what is known as invoice factoring or freight bill factoring to get the money that they need to survive, thrive and grow!
Whether you are relatively familiar with the concept of freight bill factoring or have never heard of it until just now, do not worry. We have got you covered. Continue reading below to learn about how freight bill factoring can help your transportation company.
Let’s get started!
So, what is freight bill factoring
This is, of course, where the story begins. Before you consider going the route (no pun intended) of freight bill factoring, you will want to know the basic facts and terminology. Essentially, factoring is a financial resource that gives companies a steady and dependable inflow of cash by way of selling the outstanding invoices that they are owed at a somewhat discounted price.
For that reason, factoring is not actually considered a loan. You will not have to borrow lots of money at a high-interest rate and make monthly payments with freight bill factoring. It’s actually far more straightforward and more pain-free than that.
When a transport company has to wait months to have their invoices paid, you can instead opt to get the money you need now. That way, you do not have to worry about damaging relationships with essential clients by asking for your invoices to be complete, and you can continue working as usual.
Ultimately, a freight bill company will pay for the outstanding invoices, usually for about 5 per cent less than they are owed in total—that 5 per cent reduction in the transaction price in full. From there, the freight factoring company actually takes on the responsibility of gathering the invoices for you, so you do not have to worry about reaching out to your clients directly.
Moreover, the entire process of getting the cash that your company needs only takes a matter of days. A typical factoring application will take several days to complete and be evaluated. Once that process is taken care of, the factoring company will pay out most of what is owed within 24 hours.
Then they get to work and start gathering the money tied to those unpaid invoices.
Once the invoices that you factored are paid in full, you will receive the rest of the amount owed to you, minus the fee that they charged to take over the invoices, of course. As previously mentioned, companies can typically expect to get around 95 per cent of the total amount of their invoices, with the remaining five going to the factoring company as a fee for the entire service.
How do freight bill factoring companies help transport companies?
Now that you have a good general idea of what factoring companies do and how much it costs, you may be very interested in what the real-world benefits are. In fact, you can probably already come up with some of the most valuable benefits all on your own. Still, let’s break down some of the most significant benefits together.
Companies no longer have to work with debt.
This may be the best aspect of going the route of freight bill factoring. Whether you have taken out a loan in your personal or professional life, you know how stressful it can be to be carrying out that kind of debt. That is especially true if you run into a struggling time and cannot pay back the loan in the way in which you agreed to in the terms that you signed.
This is especially true if the loan has the potential to sink your entire company!
With freight bill factoring, you never have to worry about dealing with a loan that you cannot payback. The reason is that the amount you are given by the factoring company is directly tied to the amount you are owed in various invoices. In fact, factoring agreements can often be worth as little as a few thousand dollars and as much as several million dollars! For that reason, you can continue using freight bill factoring as your company grows from a little mom-and-pop shop to a regional, national or even international company!
You can cover your financial responsibilities.
It is awful when you cannot cover payments that you need to make to keep your company growing healthfully. That is only more frustrating when you technically have the money you need but cannot access it. That is what it feels like when you have several outstanding invoices that have yet to be paid. If your client is not late on paying the invoice, it is really a wrong decision to pressure them into paying early. Not only does it cause some unwanted friction, but it can also lead them to think that your business is struggling, so they look for another transport company to work with.
With freight bill factoring, you never have to worry about outstanding invoices ever again. You will be able to get the money you need almost immediately and then get to sit back and continue working as the freight bill factoring company you are working with takes on the responsibility of making sure that those invoices get paid.
Fast cash when you need it
While you may think that going the route of taking out a business loan is the best option for financing a business, it is pretty easy to argue against that. One of the prime reasons is because business loans are not only quite prohibitive, they can also take an incredibly long time to apply for and actually gain approval for.
You have to gather a lot of information and look over tons of documents to complete your application. After that, it can take quite a long time for the bank or financial institution to get back to you. Business loans often take several weeks – to even a couple of months – to get borrowers the money they need.
In the case of factoring, the entire process often takes quite a bit less than a week! You will apply, and your application will be reviewed, which takes a couple of days, and then you will get a lump sum payment that will be worth the vast majority of the total agreement within just one or two days. That means you can quickly move on and get back to work!
Allows you to focus on growth
Being strapped for cash can severely impact a business’s ability to look into – and plan for – future success. It can be pretty hard to look past the current business week if you have issues paying your bills or employees on time. Beyond that, you can’t make the changes you need to improve your company if you do not have the funds to do just that.
When you decide to use freight bill factoring, you will be able to have the financial freedom and overhead that you need to build and grow your company. Do it responsibly because, of course, all the money that you are using comes from the revenue tied to your invoices!
Added benefits and unique opportunities
This is the final benefit because it is not a crucial aspect, but it certainly does not hurt. It is pretty standard for factoring companies to offer opportunities such as lowered insurance rates, gas cards and more to help sweeten the deal. In fact, the value of these benefits can often come out to a price that is very close to the percentage rate of your invoices that you pay at the beginning of the process!