In the transportation industry, cash flow issues are common as freight brokers or shippers may take 30, or even up to 90 days before they pay you after you haul a load. It can be a problem in the long term, as expenses continue to accrue when a driver isn’t being paid, and gaining access to working capital can also be difficult.
If you’re in the trucking business, you most likely have heard about the freight factoring program. Freight factoring is a great way for trucking businesses to improve their cash flow. The U.S. factoring services market size was valued at USD 147.40 billion in 2021 and is projected to expand at a compound annual growth rate (CAGR) of 8.1% from 2022 to 2030.
Freight factoring allows trucking businesses to get paid faster for their services, which helps them keep up with their expenses and stay in business. With freight factoring programs, businesses can get the money they need quickly without having to wait for weeks or even months for payment from customers. This program also helps trucking businesses manage their costs better by allowing them to easily track and monitor invoices, payments, and other financial transactions.
Below, we take a closer look at the top benefits of a freight factoring program for your trucking business that can help you stay competitive in today’s market.
Eliminates Cash Flow Slow-Down
The lack of cash flow is the number one cause of business failure. If you don’t receive a consistent cash flow, it is difficult to pay bills, keep your fleet running, and provide fuel to your trucks. Companies also need consistent cash flow to meet operational needs, get new business, make needed repairs, hire more drivers, or invest in new equipment.
According to certain reports, more than a quarter of freight customers do not pay their invoices on time. In the industry, invoices are paid on average in 40 days but some companies can take up to 90 days. It’s not fair to have to wait so long for payment after you’ve done the work. In most cases, freight factoring provides same-day payments.
Facilitates Competitive Advantages
A trucking firm can gain an immediate competitive edge by receiving payment for invoices from customers within a few days (or even hours) of when they’re issued, without having to wait for them to pay. As long as their cash flow is not affected by slow-paying customers or those with extended payment terms, trucking companies can offer better terms of payment to attract new customers.
Helps Avoid Long-Term Contracts
One of the most significant benefits of freight factoring is that you can avoid minimums or long-term contracts. With freight factoring, you can assess the advantages without having to commit for several years at a time. Most factoring contracts renew every year or twice per year, so you are free to choose whether or not to continue.
When evaluating factoring companies, pay close attention to any termination fees that are included in a contract. Some companies have high cancellation fees as a way to keep you renewing the contract.
Frees Up Working Load
Working capital is essential for any business to grow. Working capital that is locked up in receivables cannot be used to cover operating costs, payroll, take on new business, or add trucks to your fleet. Lack of cash flow can stall a company’s growth whereas access to working capital allows you to reinvest in your business more quickly.
Factoring invoices allows trucking companies to access working capital almost immediately, which would otherwise be delayed for weeks or months while they waited for their customers to pay.
Reduces Accounting Workload
Freight factoring is also a great way to save time for your trucking business. You won’t have to spend your time on invoicing, follow-ups, checking payments, or chasing collection. Having a freight factoring program will make sure everything is handled for you, including resolving any disputes.
A freight factoring program can reduce your accounting workload so that you can concentrate on hauling the high-paying cargoes rather than accounts receivable and collections.
Gives You Peace of Mind
Freight factoring is a great way to reduce your stress and take the hassle out of running your trucking company. You’ll know exactly when and how much you will be paid with a trucking factoring program. You can relax knowing that you will be able to pay all your bills and drivers as well as your expenses. Freight factoring pays you faster, sometimes on the same day. On top of that, there will be no more chasing down late payments.
Your trucking company can get paid quicker and with less risk when you use a freight factoring program. Simply put, by taking advantage of freight factoring for your trucking business, you can reduce your stress level, avoid cash flow inconsistencies, and spend more time growing your business.