3 Ways to Speed Up Cash Flow
Factoring companies can be especially valuable for new or growing trucking businesses where bank loans or traditional lines of credit may not be an option, and for any business that wants to reduce the time and costs involved in managing invoices and receivables. With steady income, you can focus on filling trucks instead of running credit checks and chasing down payments.
The process goes like this:
Instead of billing a shipper or broker yourself, you sell your accounts receivable to a factoring company for a fee based on a percentage of the value of the invoice. The factoring company pays you immediately—by check or electronic funds transfer—and then takes responsibility for collecting from your customer/s.
Whether you have one truck or a thousand, it’s important to develop a factoring strategy that makes sense for you—and to use the latest digital tools to manage it. Here are three things to consider if you want to get paid faster:
1. Get the “credit” you deserve
Factoring companies set their fees based on the credit risk associated with your customers, as well as the volume of factoring you’ll be doing.
There are two types of arrangements with a factoring company: recourse and non-recourse. With recourse factoring, you agree to buy back the invoice from the factoring company if your customer’s debt goes unpaid. Because you’re sharing the risk of an unpaid invoice, the fees associated with recourse factoring are lower.
With non-recourse factoring, the factoring company assumes all responsibility for collecting on the invoice. The factor’s fees are higher, and it may be more selective about which invoices it will buy, but many small trucking companies and owner-operators say these are worthwhile tradeoffs for surefire cash flow.
Some factoring companies require all your freight bills be factored, while others let you control which ones you want to factor and when. However, once you decide to factor one of your accounts, it’s a good practice to factor all the invoices for that customer in order to reduce the potential for billing-related confusion for you and your customer.
2. Make sure your factor knows your business
A factoring company will manage your billings, perform credit checks, take on the work involved with collections, and communicate with your customers’ accounts payable departments. Some factors have accounting management and reporting systems that can integrate with your own, streamlining the flow of shipping documents, supporting data, invoice distribution, and carrier settlements.
Essentially, a factor functions as an extension of your operation and will come in direct contact with your customers.
Like you would any supplier, evaluate a factoring company by asking:
- What do they know about transportation?
- Do they understand the pressures of moving the type of freight you haul or the services you provide?
- Do their rate and advance percentages change based on the load specifications or will the rate stay fixed for the term of the factoring contract?
- Are you committing to factoring eligible accounts receivable over a given period of time or based on a certain volume?
- What are their criteria for establishing the creditworthiness of your customers?
Keep in mind, some factors are extremely selective—the rate may be low, but only because the factoring company refuses to take on any risk.
You should also ask for a detailed schedule of fees. Direct deposit, wire transfers, and credit checks may be subject to additional charges. This adds up over time.
3. Ask about Quick Pay
Instead of signing a contract and selling your invoices directly to a factoring company, you may be able to take advantage of Quick Pay, an accelerated payment program offered by freight brokers.
Like factoring, the broker will guarantee payment within a set number of business days following receipt of your shipping documents in exchange for a percentage of the invoice. Large brokerage operations may offer cash advances and other service discounts to offset your out-of-pocket expenses.
Quick Pay is convenient because the dispatched load and payment come from the same source, and there’s no contract or minimum volume because the factoring arrangement is between the broker and factoring company. You have the flexibility to pick and choose the loads you select for Quick Pay.
Many freight brokers will indicate that a load is credit-approved and available for Quick Pay when they post it to a load board. Think of it as cash flow without the fine print—but also without the support or additional services that a direct relationship with a factor can provide.
Conclusion: Putting your digital tools to work
Providing a factoring company with clear, complete, and accurate invoices, bills of ladings, lumper receipts, detention time, and other records is essential to making sure funds can be issued when you need them and without hang-ups. Your payment may be delayed if information is missing from your documentation or you submit a poor-quality scan.
That’s why it’s important to put your digital tools to work.
Transflo allows you to scan and send documents to your broker or factoring company using Transflo Express scanning stations at more than 2,000 truck stop locations, including Pilot Flying J, Love’s Travel Centers, TA, and Wilco-Hess. You can also scan from your computer or mobile device.
With Transflo document imaging solutions, factors receive electronic files in a consistent format from one consolidated repository. It reduces the time and errors that come with manual data entry at the time of submission. Instead of manually collecting and handling paperwork, Transflo automates it for you using the most advanced digital document processing technology.
As a result, you get funded faster. And that’s money in the bank.