What does it take for a small trucking company to compete in today’s business world? Is it good business strategy, efficiency or top customer satisfaction? These may be the buzz words, but are no magic bullets. Ever-changing technology and demographics add risk and uncertainty what creates the need to adapt fast in order to stay alive and ahead of competitors. But sometimes even going in with all guns blazing and bringing your A-game isn’t enough for survival. It’s because running a business is more about what you do not show rather than what you do show.
One of the biggest challenges and the reason why so many small trucking companies are scrambling to keep up is the time it takes to get paid by customers. Being cash-strapped could take your business to a different direction. However, maxing out your credit cards to find working capital in order to survive the gap between the expenses and the expected payments could kill your business. To boost your cash flow you should start researching truck invoice funding.
Truck invoice funding, also known as factoring or accounts receivables financing, is trading in unpaid invoices (at a discount to the face value) to a third party for immediate cash. So instead of waiting 30, 60 or 90 days to get paid for the loads you’ve already hauled, you can sell your accounts receivables for a lump sum of cash and ensure you have the funds to cover your monthly costs (fuel, insurance, etc.) and keep your business running.
Contrary to popular belief, factoring is not a loan. Unlike business line of credit and a small-business loan, invoice funding setup and approval process is quick. Certain factors (third party financial companies) even offer same-day funding. There’s also less requirements to meet. Unlike banks, factors do not require a wide range of legal documents, current and projected financial plan, collateral to back the loan, or a corporate guarantee. The only requirement is to have creditworthy clients. Simply put, your credit history doesn’t matter.
That sounds easy, but what’s the catch? – you ask. There’s no catch, it’s all very straightforward. The finance company is willing to take the credit risk with your customer by buying your accounts receivables at the discount rate. The rate can run from 1% to 5%, depending on the accounts receivable amount and whether your customer is creditworthy.
If you think the discount rate is high, consider the frustration of not getting paid on time and the havoc it can wreak on your business. Steady cash flow is critical to the success of your company as it can help you control your day-to-day finances and ensure smooth and efficient operations. Hence, the cost of factoring fee justifies the convenience of getting immediate cash to manage the demand and being in a cash positive state. Especially if you have poor credit history and if there are no other get-cash-flowing-faster options.
Plus, there’s no debt involved as is the case with bank loans. Any type of loan is indeed a good way to ensure you get off the ground as it means immediate funds to invest in tools needed to run your business. However, since bank loans tend to be large, it may take you years to pay off. Plus, a greater portion of your cash flow will be devoted to loan and interest payments, which can put you in a disadvantaged position. With truck invoice funding you can get immediate capital without taking on new debt.
To sum it all up, factoring is a great way if in need of immediate funding, be it for paying current operational expenses or taking advantage of growing freight market opportunities.