The Benefits of Factoring Financing

Written by Economic Development Jobs on February 26, 2019. Posted in Business invoice factoring, Transportation factoring, What is a factoring company

Many industries exist in the United States today, and they are highly diverse in what they do. Some are farms or manufacturers, producing everything from grain to automobiles to computer parts and kids’ toys. Other businesses provides services, such as IT for client businesses or maid cleaning services for hotels. And other businesses deal with freight, making them carrier companies. Many of these diverse businesses are on the smaller side; nearly 28 million small businesses can be found across the United States today, and together, they do a lot of work. Carriers, meanwhile, make their profit from charging invoices to their shipper clients, but these invoices take time to pay, and payments are sometimes late. This is how factoring financing can help. Freight broker companies or business factoring companies can offer freight invoice factoring for client carriers, and factoring financing can save a smaller company from ruin. The best invoice factoring can make for a smoother cash flow for the carrier. What is there to know about American carriers and their need for factoring financing?

American Carrier Companies

Many carrier companies can be found across the United States, and they employ many Americans today. In fact, the Federal Motor Carrier Safety Administration has estimated that nearly 5.9 million American jobs exist for commercial motor vehicle drivers. Vehicles such as trucks, freight trains, airplanes, and sea vessels are transporting goods of all kinds for their clients. It is not enough to produce goods at a factory or farm; freight companies must be hired to transport everything to and from farms and factories, warehouses, and retailers. Transport vehicles may sometimes be tailored for the job, such as reefer units. Reefer trucks or trailers have refrigerated storage spaces for carrying dairy, wine, and frozen foods, and are popular for grocery stores and liquor stores. Other times, trucks and their crews must be ready to handle hazardous materials such as liquid nitrogen, canisters of explosive natural gas, or even nuclear fuel rods. Where does factoring financing fit into all of this?

Carriers and Factoring Financing

Like any other company, carriers need to make a profit. Usually, carriers make their profits by charging invoices to their shipping clients, but even when invoices are paid on time, a wait time of 60-90 days may be expected. And it is certainly not unusual for invoices to be paid late. The simple truth is that carrier companies, especially smaller ones, literally cannot wait for those invoice payments. Carriers have their own expenses to handle, such as fuel and maintenance costs, not to mention crew salaries and marketing costs. Smaller companies will not have deep cash reserves to fall back on while waiting for invoice payments to arrive, so they will need money lending services. This is known as factoring financing.

After a freight carrier company has sent an invoice to its shipper client, the freight carrier may look for invoice factoring companies to act as a middle man. Carrier companies with good business credit may have an easier time finding factoring companies willing to work with them. And once a factoring company is brought onto the scene, the money lending begins.

A factoring company will assume the rights to collect 100% of the invoice payment on the carrier company’s behalf, and in exchange, it offers a loan. The factoring company will give 70-80% of the invoice’s value to the carrier company as immediate, up-front money, and this can be a lifesaver. A small carrier company with pressing expenses will urgently need that money while waiting for the customer to pay the invoice. Often, this can save a smaller company from going bankrupt.

Once the customer does pay its invoice, the factoring company will collect 100% of that invoices, as previously arranged. Now, the factoring company will extend a little more money to the carrier client, and this adds up to around 95-98% of the invoice’s total. The factoring company makes its profit when it keeps 100% of the invoice payment as well the as 2-5% on top of that. The carrier client will sacrifice that 2-5% of the invoice total in exchange for getting most of the money up front, and in nearly all cases, this exchange is absolutely worth it. This ensures steady cash flows for smaller companies.

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