By financen | December 23, 2019 - 8:45 pm - Posted in Trucking Factoring

If you are in the trucking industry, keeping your business successful will be one of your most pressing concerns. You might have a steady stream of clients, and you never run out of projects. Again, most of your clients pay within 30 to 60 days after delivery of your service. It is fine if you never run out of money to finance your bookings. But what happens to those who are just starting or those who need steady cash flow to get the business going?

Do not worry. Many reputable trucking factoring companies offer quick cash for your unpaid invoices.

What is factoring and what does it deal with?

Factoring is also known as accounts receivables or freight factoring. It is a financial transaction wherein a trucking business sells its accounts receivables to a specific factoring firm. The rationale behind it is to get immediate cash.

Invoice financing is also interchangeably used with invoice factoring, but these terms are not the same. The latter means the sale of a company’s asset, while the former is a loan guaranteed by an invoice.

There are four main components involved in the invoice factoring procedure. These components are the following:

  • The business
  • The clients/debtors of the business
  • Invoices or accounts receivables of the business
  • Factoring firm

If you are a trucking company and you are interested in trying trucking factoring, you need to go through these steps:

  1. A business requests your trucking services, and you issue them an invoice payable within 30 to 60 days (or more).
  2. You, on behalf of your business, sign up with your chosen factoring firm.
  3. You assign/sell all or part of your invoices to the factoring company.
  4. The factor approves the sale, and once done, you are provided with a cash advance according to the agreed cash advance rate.
  5. Your client pays your invoice.
  6. Your client’s payment is then deposited into a temporary reserve account.
  7. The factoring company then sends you the funds, deducting a certain percentage of the factoring fee.

How to Compute Your Net Cash Advance

For example, XYZ Company engaged your trucking services. You then issue a 1,000 USD invoice, payable within 60 days. You seek the help of a factoring company, and you agreed to an 80% cash advance rate, with a 2% discount fee for every 30 days.

It means you agreed to sell your accounts receivables to the factor and will receive an 800 USD cash advance. On the 29th day after the application of the factoring agreement, your client paid the invoice. The factoring firm reserves the payment and deposits the same into a temporary reserve account.

The factoring company then takes a 20 USD factoring fee, along with the 800 USD advance you already received. They will then wire you the remaining 180 USD. The transaction is as smooth as that. The fee is also minimal, considering the benefit you enjoyed.

The Final Takeaway

The business can significantly benefit from a steady flow of cash that supports its operations. With a little fee, you get up to 80% of your unpaid invoice from an earlier period. With the advantages it offers and the easy application process, there is no reason why trucking businesses will not engage the services of these factoring firms.

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