4 Key Things to Know About Freight Factoring
Freight factoring, also known as trucking factoring, is a form of factoring the invoice that enables trucking companies to turn their invoices into cash. Truckers need money to run their business because the big rigs consume a lot of fuel as well as other supplies that could add up to thousands of dollars.
Truck company owners need to have cash ready to run their vehicles. Waiting on the invoices to cash in is not an option for some businesses. That’s why freight factoring was introduced; it helps to put some money into the hands of truck operators before their invoices can come through.
Although most operators view freight factoring as an essential aspect of business, it is worth noting that you will need a minimum income of $100,000 to qualify. Most of the businesses use this cash to smooth their operations and maintain a steady cash flow. The following are four things to know about freight factoring.
Who it is for and how to qualify
Freight factoring is suitable for all businesses, big, or small. All a business needs is to meet the qualification criteria. It enables small firms, for instance to access financing that could be hard for them to obtain, especially if their credit ratings are poor.
Different sizes of businesses have different goals. Big businesses, for instance, can benefit from freight factoring by accessing capital that would enable them to fill their cash flow loopholes easily. This is because when compared to traditional loans, freight factoring is easier to apply and is processed fast.
With freight factoring, the financier is more interested in the financial position of the customer because he or she is the one who pays back through the invoice. If the firm that owes the trucking business is a reputable solvent company, the trucker will have no problems accessing the cash.
In addition to those qualifications, the applicants should also meet the following conditions:
• Should have a credit score of at least 530
• Should have outstanding invoices that are to be honored in a period of less than 90 days
• Some providers insist that the company should have been in business for at least 3 months while others require it to be at least 6 months old
How much it costs
In most companies, the cost of a freight bill is based on the time it will take for the invoice to be fulfilled. The longer it takes for the invoice to be honored, the more it costs the business and vice-versa. Typically, these rates range between 2 and 5 percent per month.
Big trucking companies, however, are likely to enjoy a sweeter deal. Big companies often do business with other big or reputable companies. As a result, they are usually viewed as less risky since they are established. Low-risk borrowers access money at lower interest rates.
Big companies are typically charged a flat fee for each invoice that is factored. The companies are not charged per week or month; it is just a flat fee.
How it works
Most freight factoring companies follow five simple steps. The first step is to ensure that the business has invoiced the customer. Small businesses choose the invoices they need but bigger businesses offer all the bulk of their invoices to be processed.
After the invoices have been processed, the business is paid. Factoring companies typically pay at least 80 percent of the total value of the invoice. When the clients pay, the money is collected by the factoring company, they deduct their charges, and pay the remainder.
What are the benefits?
Freight factoring is beneficial to many businesses because it provides financing that may be hard to access for smaller and newer companies that haven’t built their credit history. Factoring also helps to keep more businesses open in the cash-strapped times.
Factoring helps big businesses in collecting and managing receivables. Because most of the big firms factor all their invoices, they can then spend less on their own internal receivables departments and invest those resources in other areas.