Whether you’re a 30 year veteran of the road or an up-start trucking company, you’ve come to realize that one thing you need to keep your business from going off track is cash in hand.  There are a handful of industries – trucking, construction, manufacturing, cleaning or maintenance – where you live and die by getting paid from one job to be able to tackle the next job.  In instances where you have to wait a month or more to get paid for an invoice, you still need the cash from that delivery to buy fuel, pay drivers, maintain trucks, pay insurance, or loans on equipment.  To keep a trucking company thriving or better still, growing there are financing options like freight bill factoring to keep an influx of cash coming into the business and protecting your bottom line.

Factoring is selling your freight bill to a factoring company for a percentage of the invoice amount.  The factoring company will issue payment within a matter of hours or days and then assumes collection duties.  In addition to the quick turnaround from delivery to dollar in hand, another benefit of invoice factoring is handing over the chore of managing accounts receivable and all the time consuming paper work of collections to the factoring company.

The other upside is most factoring companies offer credit services and background checks on freight deliveries from new clients.  Since it’s in everyone’s best interest to find reliable customers for shipping freight, factoring companies can become a valuable asset in landing a great job and avoiding the dead beats.

Qualifying for financing through factoring companies is a relatively quick process that is usually turned around for approval within a few days.  The main qualifications they look at when considering approval is if your trucking business is in good financial health with a reputable customer portfolio and is free of tax problems.  Most factoring companies are accustomed to working with small to midsized companies, as well as relatively new companies who might not have established as lengthy of a credit history as more seasoned businesses.

Running a business is a tricky balancing act, but none so much so as running a trucking company.  Keeping all the balls in the air and all the trucks on the road means having a cushion of cash to fall back on when it comes time to pay for fuel, insurance, equipment loans, drivers, and repairs and maintenance, which will allow you to accept the next job so you can pay for the same costs the next month.  The trick is unless you have plenty of cash as a safety net, the freight you delivered today might not prove profitable for a month or two.  How do you pay for the costs you have today until money rolls in tomorrow?

Young companies usually feel the pinch sooner than veteran lines with deeper pockets.  One reason is that lending options are limited.  A business loan with a manageable interest rate is reserved for companies with established credit records and in the current economic climate, lenders will rarely even consider a trucking company without financials that can prove at least three years of profitable operation.  If that were the case, why do you need a business loan?

Another option is freight bill factoring or invoice factoring.  It provides more flexibility, return on invoices within days, quicker turn around on financing approval, and a greater ability to work with upstart or newer businesses because a factor’s willingness to factor invoices is based upon the credit worthiness of your customers rather than your own credit.

If you have maintained a decent credit history, secured reliable clientele, and stayed out of trouble with the tax man, you’ve likely met the approval requirements for freight bill factoring.  In which case, the factoring company buys invoices on freight already delivered and issues the majority of the payment within a few days.  The first installment is an advance and typically gives you an automatic return of up to 95 percent of the outstanding payment.  The second installment is a rebate that is kept in reserve to cover any disputed charges or damages and then is paid minus a fee once the invoice is actually paid.

The lending rate or factoring fee is calculated either daily or monthly based on volume and on how long the invoice is outstanding.  These rates average between 1.5 and 7 percent.  Most factoring companies lend under a non-recourse agreement meaning they assume the risk of nonpayment, in which case you are only out the 10 percent reserve instead of the whole invoice cost. Some factoring companies will also offer lower rates on recourse factoring, which means you still bear most of the risk of nonpayment.

South Dakota banking is evolving to meet the challenges of the financial times with the opening of the first in-house factoring division within the state.  FirstLine Funding Group in Madison, SD is a new commercial finance division of First Bank & Trust which specializes in freight bill factoring for trucking companies and businesses associated with the transportation industry.
 
True, factoring in and of itself is not a new service statewide, but the fact that this is the first time that a mainstream bank has made it part of its lending practices is notable first, for the acceptance and approval of the practice by established lenders, and secondly, for the profitability and reliability of factoring both as a lender and as a customer.
 
Factoring involves a lender purchasing invoices for a percentage of cost and then assuming the collection of payment.  The practice is particularly beneficial in industries that are cash driven like the trucking industry where cash flow is vital to keeping the truck on the road and freight moving.  Oftentimes freight invoices can take a month or more to be issued and paid, and in the mean time owner’s are looking for cash flow to pay drivers, make insurance premiums, and keep up truck maintenance and repair to accept the next job.
 
The other upside of using an invoice factoring service, particularly one with resources like FirstLine Funding, is their ability to research credit and payment history for potential deliveries the trucking company is considering accepting. 
 
FirstLine Funding, like other financial companies who offer freight factoring, manage collection on goods already delivered.  Like any lending agent, they look for investments with a clean credit history, a dependable freight payment record, and financial records in the black.  Factoring is not really a great option for those companies already in the throws of financial difficulties, but for a business looking to turn over the collection duties to keep cash flow coming, it can be a great option.  It’s a great fit for someone looking for a partner in accounts receivable financing rather than a lifeboat for a sinking ship.

With many trucking companies feeling the cash flow squeeze in these tough economic conditions, large numbers of trucking companies are turning to invoice factoring, or freight bill factoring, as a way to improve their cash flow. Invoice factoring has many advantages over traditional bank financing, and I will discuss just a few of these advantages in this article.

First, by factoring their freight bills, trucking operators do not need to go through the hassle of filling out loan applications at their bank only to be told that they don’t qualify. Although most factoring companies have an application form, it is generally shorter and easier to complete than a bank loan application.

The next advantage to factoring is the speed with which a trucking company can obtain cash. Since cash is the life blood of every trucking operation, having a stable, steady cash flow is critical to ensure long-term success of the business. Most factors can review and approve an application in 24-48 hours. Additionally, once approved, a factor can purchase a freight bill and get cash into the trucking company’s bank account in 24 hours or less. The application and funding turnaround time is generally significantly shorter with a factor than with a bank.

The final advantage to invoice factoring I want to touch on is credit worthiness. Unlike a traditional bank loan, factoring is not dependent on the trucking company’s credit worthiness, but rather the credit worthiness of the customers or debtors paying the invoices. If a trucking company does business with financially solid, reputable businesses, factoring companies should have no problem buying the trucking company’s freight bills.

Freight bill factoring can provide a trucking company with the cash it needs to cover its day to day expenses such as fuel, insurance and payroll. And while it may not be considered a traditional method of financing, factoring has been around for hundreds of years and is a financial tool trucking companies should not rule out.

An easy analogy to understand freight bill factoring is a physician hiring a billing agency to handle the financial end of collection from patients and insurance companies.  It’s a mutually beneficial relationship because the doctor can concentrate on patients not the ticky-tacky headaches of billing, and still know he’ll receive a paycheck, and the financial end is handled by experts in their own field who are paid for their services.

In the trucking business, a financing company a.k.a. “factor” buys a trucking company’s freight bill, advances the capital within a few days, and then takes on the responsibility of collecting from the trucking company’s clients.  Of course, business is business and the factor collects a fee for their services, and depending on the terms of agreement may be entitled to recourse if a freight invoice goes unpaid.

The huge upside to invoice factoring for a small to medium sized trucking company is increased cash flow.  Instead of waiting months for a return on an invoice, capital that is meanwhile needed to keep the company afloat, there is now a turnaround of only a few days. 

Most fees for factoring are going to run between three to five percent of the total bill, and like traditional lending rates are based on a good credit score, factoring rates are affected by the reliability of customers and sometimes how quickly they pay their invoices.  Likewise, the factor is going to want to have a fair understanding of the customer list before signing on, and proper documentation will be needed including an original bill of lading.

Don’t be concerned if the factor requests a reserve from the advance on the invoice. It doesn’t necessarily mean that your trucking company is not a good investment, it’s a common practice that the factor uses as insurance against unpaid invoices or other fees they might need to collect. A typical scenario of a reserve is a trucking company receiving 85 and 90 percent of the freight bill up front from the factor, and then when the invoice is paid, the rest is paid to the trucking company minus the factoring fee.  All the money due your company will be received, pending any major complications, and the major bulk of the cash is in your account within days.  Plus, even in the event of losing the reserve, you are only out a small portion of the invoice instead of the full amount.

Factoring in the freight business can be a huge asset to a company looking for a way to free up some cash flow.  Just remember to always seek out a reputable financial company, and be fully aware of the stipulations of the factoring agreement.

It is no secret that the U.S. economy is struggling, with many experts stating that we are in a recession. A majority of trucking owners that I know would concur that, at worst, it feels like we are in a recession. As the economy limps along, so goes the trucking industry. There is less freight to move, fuel prices are high, and the price pressure on the truckers makes it very difficult to be profitable in the trucking industry.

Invoice factoring, or freight bill factoring, is one way to help fight through the tough economic times. As I have discussed in previous blog posts, factoring can provide business owners with the cash they need to pay for fuel, cover payroll, take advantage of supplier discounts and reestablish a solid credit score. by accelerating your cash flow, you are in better position to meet the daily demands of your business. Even in a slow economy, factoring gives you the ability to better control your cash and more closely monitor your financial health.

As many trucking operators struggle to obtain financing, they would be wise to consider factoring as the way to stabilize their trucking company’s finances. Managing a trucking operating is one of the most challenging jobs out there, and using effective financial services like invoice factoring is one of the best ways to help fight through recessionary times.

A common theme in recent news about the U.S. economy is the tight credit market and the unwillingness of banks to lend money, even to credit worthy debtors in some cases. We see in the news more and more banks dealing with unmanageable levels of bad loans, and many banks being shut down by the Feds. So the question arises, what should trucking companies do about financing their business?

If trucking operators thought obtaining financing was difficult prior to the last year or so, they would undoubtedly be shocked at how difficult it is for trucking operations to obtain traditional financing from a bank in today’s tough economic times. There is, however, an alternative to traditional bank financing for trucking companies. The alternative is invoice factoring, or often referred to as invoice discounting.

Invoice factoring is a financial transaction where the trucking company sells its invoices or receivables to a financial institution called a factor. The factor purchases the invoice at a discount, and earns his fee when the payment is received from the trucking company’s customer. Freight bill factoring is not only a good choice for many trucking companies, but may be the only option for some trucking companies.

Although some factors may have bad reputations and not treat their clients and debtors appropriately, most factors are very professional and give trucking companies and their customers the respect they deserve. A good place to look for a factor is at a site called Best Invoice Factoring. This site is a directory of factoring companies that can be identified either by location or industry specialty. This is definitely a great resource for truckers who want to start looking for a factor.

If you are reading this blog post, congratulations on finding one of the newest information resources on the invoice factoring industry. I am a certified public accountant and have many years of experience in the accounting, financial serivces consulting, and factoring industries. We wanted to start this blog to provide information to the truckers all across America, many of which are my friends, about invoice factoring and how it can be an effective financial resource for your business.

We will comment on developments within the factoring industry, transportation industry news, as well as general market conditions impacting the trucking industry. This will include some commentary on the geopolitical news relative to oil prices and the impact of the housing market slump on the trucking industry.

We hope to keep this blog informative, educational and entertaining. So check back often and see what we are saying about some of the issues that impact America’s trucking businesses.