What Commercial Factoring Companies Can Do

Written by Economic Development Jobs on May 1, 2019. Posted in Advance business capital factoring, Freight factoring companies, Why get an invoice advance loan

The United States is known for its enormous infrastructure of manufacturing, and goods ranging from cars to furniture to books to kids’ toys are produced in great numbers every year. At the same time, American farms, vineyards, and orchards from New York state to California are producing the nation’s foodstuffs from wheat to dairy to chicken meat. But all of these goods need to be delivered, and the American transportation network is up to the job. Today, countless trucks, freight trains, airplanes, and seagoing ships are delivering goods when carrier companies are contacted by shipper customers to make deliveries to and from factories, warehouses, and retailers. These carriers, many of which are on the smaller side, charge invoices to their shipper customers for their services rendered, but carriers also make use of third parties such as commercial factoring companies or freight brokers. Why get an invoice advance loan, and what is a factoring company? Hiring commercial factoring companies can save a smaller carrier from cash flow problems, as detailed below.

The Work of Carriers

Carrier companies, which are often small, will have a modest but hard-working fleet of freight cars, trucks, or planes to deliver goods on behalf of their shipper clients. Such carriers most often have trucks, which are convenient because they are much more affordable than aircraft and can visit many places that planes and trains cannot. Carriers will work with freight brokers to arrange a deal between themselves and shipper customers who are looking for delivery services of their goods. Freight brokers also make use of GPS and geospatial data tracking to monitor a delivery vehicle’s progress.

However, smaller carriers rely heavily on invoices that they charge to their shipper customers, and even if such invoices are paid on time, carriers may expect a wait time close to 60-90 days or so. And of course, some invoices are paid late, and in either case, a smaller carrier company cannot afford to wait that long for the payment. Small carrier companies don’t have deep cash reserves to fall back on while waiting for that payment, and they have their own expenses to cover during that time. To smooth out their cash flow, carriers will turn to commercial factoring companies and invoice funding companies to help out.

Reaching Out to Commercial Factoring Companies

A carrier will work with numerous third parties during a delivery, starting with a freight broker company, then later commercial factoring companies. After the carrier has started a delivery for its shipper customer, it will charge an invoice, but as mentioned earlier, smaller companies literally cannot afford to wait for that money to come. Therefore, carriers will look to local commercial factoring companies and hire one to provide them with a business-to-business (B2B) loan. If a carrier has sufficient business credit, the factoring company may be hired.

The factoring company will purchase the right to collect 100% of the invoice value once the shipper pays it, and in the meantime, the factoring company will give the client carrier company an advance loan. That loan may be around 70-80% of the invoice’s total value, and this timely, up-front loan is essential for the carrier company’s cash flow. With that timely money, the carrier can cover its own expenses such as salary staff, maintenance and fuel for their trucks or planes, advertising costs, and paying off those vehicles. This can help protect a carrier company from bankruptcy during the invoice payment wait time.

Later, when the invoice payment is fully made, the factoring company will collect it all, as arranged earlier. Now, the factoring company pays the carrier another, smaller percentage of the invoice’s value, and the total loans may add up to 95-98% of the invoice’s value or so. The leftover amount is kept by the invoice company as the fee for their services rendered, and that is part of the invoice factoring company’s income. This, in turn, means that the carrier will sacrifice 2-5% of the invoice’s total value in exchange for the helpful timing of the up-front loan. For most carriers who can’t fall back on deep cash reserves during the wait time, this may be a practical trade to make that could save the entire company from bankruptcy.

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