How Freight Factoring Can Improve Cash Flow for Trucking Companies

Loans are a common solution when a trucking company starts to experience cash flow problems. However, they take time and put your business in debt. Consider freight factoring for trucking companies instead. This simple financing option uses your accounts receivable to provide you with an instant cash injection. Here is what you need to know about freight factoring.

What is Freight Factoring?

Freight factoring is a specific form of invoice or accounts receivable factoring tailored to the trucking industry. It is sometimes referred to as trucking factoring, transportation factoring, or truckload factoring. It involves turning your unpaid invoices into immediate cash to keep your business running. A freight factoring company will buy your unpaid invoices, issue a cash advance for a percentage of the invoice amount (up to 97 percent in the case of Little Mountain), and then collect the payments from your customers. Then, once your customers pay their invoices, the factoring company subtracts a small fee and pays the remainder to you.

How Does Freight Factoring Work?

First, you fill out a factoring application. When that is approved, you will sign a factoring agreement, which stipulates the rates, percentages, length of the service, and (with some factoring companies) the cost of ending the agreement. In the case of Little Mountain, we do not charge any fees if you choose to stop using our factoring services. 

Once everything is agreed, you can start sending your invoices to us for factoring whenever you need to. With us, there are no hidden terms and conditions, and the process is quick and easy. 

Benefits of Freight Factoring for Trucking Companies

Trucking factoring offers several advantages for freight companies. 

Immediate Access to Working Capital

The primary benefit of freight factoring is that you get to access your money sooner than you normally would. The money you access through factoring is already yours. You just get to expedite your receipt of it. You can keep the cash flowing and stay ahead of your expenses. Factoring helps you to make your financial situation more predictable and thus helps you plan better. It stabilizes your cash flow and prevents liquidity problems.

It is also important to remember that factoring is not a loan, so you will not incur any debt, and your credit history is not relevant to your application. You will not pay any interest,nd there will be no repayment plans to consider.

Reduction of Financial Stress

With your cash flow secured and stabilized, you can let go of financial stress. The greater predictability enables you to plan your business finances as you see fit. As long as you are doing good work and producing invoices, you can rest assured that you can generate more cash immediately through factoring.

Enhanced Ability to Take on More Jobs

Better cash flow improves your capacity to take on new work, because you know you have the money to cover the initial costs. Fuel, maintenance,nd other expenses can all be accounted for.

Comparing Freight Factoring to Traditional Financing

What if you decided to take a different approach to solving your cash flow problems? A traditional bank loan is certainly an option, but would it suit you better? 

Differences Between Factoring and Bank Loans

The main difference between factoring and a bank loan is that the latter is a form of debt. You acquire a lump sum from your bank, and you are then indebted to the bank until you pay back the principal plus interest. Factoring is not a loan. You sell your invoices and receive payment for that sale. No debt is incurred at all.

Aside from this core difference, bank loans also have a longer approval process, and you would likely need to secure the loan against some form of collateral. Approval would be based on your credit history, the collateral you provide, and your business’s ability to repay the loan.

Pros and Cons of Each Financing Method

The pros of invoice factoring are:

• Fast approval process
• No credit check required
• No debt involved
• Flexible, depending on the business’s scale, size and revenue levels

There is one possible con to take into account: factoring can be slightly more expensive in the long run. However, this would depend on the amount you factor and the percentage you are charged by the factoring company.

As for bank loans, they have more cons than pros:

• You would have to go into debt
• The application and approval process take too long
• You may not get approved at all
• You need to have a strong credit history
• Bank loans are not flexible; they involve a fixed dollar amount

On the plus side, they can potentially be more affordable in the long run, but that would depend on the interest rate your bank would charge you.

Situations Where Factoring is More Advantageous

You should choose factoring under the following conditions:

• When your business needs a fast cash injection
• You need scalable financing on an ongoing basis
• You are running a new, small business that lacks cash flow and credit
• There is enough money in your accounts receivable to cover your needs

Choosing the Right Freight Factoring Company

When looking for the best factoring companies for truckers, the most important thing is to look for one who is willing and able to work with your business and understands your work. In addition, some research should be done on the company to see if it is reputable. Find out how long they have been in business, and how other businesses rate and review them. Also, ask them about all their terms, fees, and funding limits. Make sure that there are no hidden costs and that you are getting the best deal possible.

Little Mountain is a Florida-based factoring company that serves freight businesses across the country. We have been providing reliable factoring services to trucking companies for many years. We do not believe in red tape, our terms are extremely flexible, and we don’t charge fees if you decide to stop working with us. If you are looking for freight factoring for trucking companies, contact us for more information on our services or fill out our online application form today.