Freight Factoring can be the key component that can significantly ease your stress in having a positive cash flow.
Payments of delivering a load is almost never made immediately, and with the industry-standard payment made with 40 days or more, the last thing you want to deal with is waiting for a payment from 8 loads ago. This is where freight factoring comes in as one of the most common solutions for positive cash flow.
Why is it beneficial?
According to TAFS, freight factoring is a process where “your company’s accounts receivable are converted into cash by selling the freight bill of lading or outstanding invoices to a factoring company. Instead of waiting for 30, 60, or even 90 days for a load to be paid out a factoring company will get you that money now for a service fee.” In short: when the customer’s cargo has been delivered and you undergo the process of freight factoring, the payment for completing the load minus the factoring cost equals your profit.
With this process, you don’t have to wait for your payment. Essentially, the company does the waiting and “buys” your invoice for slightly less than the total owed, and you have a positive cash flow, usually within 24-48 hours.
What do factoring companies take into consideration?
Companies that offer factoring consider 4 things to dictate the program they want for you.
- The first thing is volume; the more you factor, you will typically pay a smaller percentage for their services.
- They also consider your customer base. It’s in your favor if you’re working with more than one brokers offload boards.
- The third thing is your days to pay. More frequent invoices mean more profit for the company.
- The last thing is the amount needed to be advanced. With a decent starting cash flow, you don’t have to advance 95% of your invoice. This puts you at less risk with the factoring company and could also help lower your rate.
Need Help Learning More?
We have a connection to help you expand your business! Jeff Severson at Primary Funding Corporation is here to help you with factoring.
If you’ve been looking to expand your business or know someone who is starting their own business, refer them to Jeff to help out!