How Invoice Factoring Grows Your Business
Whether you’re a manufacturer or a distributor, a sole proprietor or a corporation, cash flow is essential for your business to stay successful. If you are in the trucking business, this is where invoice factoring can offer some help. By partnering with a company that provides invoice factoring, you’ll get access to the funds you need from unpaid invoices as quickly as the same day you deliver the load—no more waiting for companies to process invoices in their own time frame, leaving you strapped for cash.
Invoice factoring helps you get the money you need to keep your business running smoothly. Ready to learn more? Read on to understand how invoice factoring can help grow your business.
What Is A Factoring Company?
A factoring company is in the business of purchasing invoices (accounts receivable) from other companies to help those companies with their cash flow. They do not lend money, but rather they purchase the invoices which is why the fees for their services are considered “discounts” as opposed to interest rates. Factoring has been around for thousands of years. Any time manufacturers of goods had to wait for their customers to sell their finished goods, the need for a factor has been around.
Factoring is very prevalent in the transportation industry due to the immediate need for cash while having to offer terms of 30 days or more. The factor’s services have also expanded over the years to include invoice generation, invoice submission, credit checks and collections.
How Does Invoice Factoring Work?
The typical process of getting paid for an invoice can sometimes take time and effort. Trucking companies with a few years of experience know that some clients are not the fastest when it comes to paying for work completed.
Submitting and collecting payment on an invoice without factoring often looks like this:
- The trucking company delivers the load and gets the bill of lading signed
- They submit an invoice along with a copy of the rate confirmation and the signed bill of lading to the shipper/broker
- The broker/shipper receives the invoice package and processes for payment
- The trucking company waits anywhere from 30 – 90 days to be paid depending on the terms offered (typically 30 days) and how well the shipper/broker pay their carriers
Now, as you can see, this process can be somewhat lengthy (especially if there are any errors in the paperwork) and it can cause a cash flow shortage for the trucking company.
And often, smaller trucking businesses or newer developing companies need that capital as soon as possible to keep their trucks on the road. If a mistake was made delaying the payment or a client refuses to pay an invoice, this can be devastating for these companies.
This is where invoice factoring is helpful.
Using invoice factoring, the trucking company sells the rights of their outstanding invoices to their factor for cash today instead of waiting on payment from their customer. This allows you to get access to much-needed cash quickly without having to wait out long payment cycles.
With improved cash flow the trucking company has the funds needed for fuel, truck payment, trailer payment, insurance, etc. – all without having to wait 30 days or more. Factoring takes the worry out of when the company gets paid. Additionally, having a predictable source of cash allows owners to make better decisions about hiring new staff members, investing in new equipment and managing payables in a manner that conserves cash while growing the business.
What Are The Benefits Of Invoice Factoring?
We’ve already covered the benefit of faster access to capital – fuel, maintenance, driver pay, insurance, truck and trailer payments – with a predictable source of cash. Interestingly it is easier to qualify invoice factoring than it is to secure a loan at the bank.
Having more working capital equates to you having the ability to pay loans for equipment, building costs, etc., on time, thus helping your credit.
Another benefit of factoring is that it provides reduced paperwork and administrative costs. Typically trucking companies not using a factoring company have to do a plethora of administrative tasks. These include filing all necessary paperwork, invoice generation, communicating with clients, and handling the collections portion of your business. Working with a factoring company like Provident Commercial Finance simplifies this process.
Utilizing invoice factoring can help save business owners time or even eliminate the need to hire extra personnel to handle these administrative tasks.
Factoring provides much more than “just” cash flow. The factor runs credit checks on new brokers to make sure they pay well. When the loads are delivered the factor just needs the rate confirmation and signed bill of lading from the trucking company. With those documents the factor generates the invoice and sends the whole package to the broker.
Many brokers have their own portals or different ways to submit invoices – the factor knows all of them and handles the accurate submission for the trucking company. If the broker takes too long to pay, the factor handles the collections process as well. The trucking company has a full accounts receivable team working their account and those services are all included in the cost of factoring (the “discount” discussed earlier).
In summary, invoice factoring is an excellent way for trucking companies, both big or small – established or new – to unlock their potential without having to wait out tedious payment cycles or chase down late payments from customers who may not be able or willing to pay on time each month. By using invoice factoring services, businesses can grow their operations quickly while reducing overhead costs associated with collections and improving customer satisfaction through the timely delivery of goods or services delivered upon receipt of funds from their third-party lender partner.
So why wait? Start utilizing invoice factoring today and give Provident Commercial Finance a call.