Trucking Factoring Companies for the Trucking Industry
It's obvious that trucking factoring rates will be more than loan interest asked for by a bank. Yet remember that you simply cannot truly compare truck factoring (a short-term debt instrument) with a bank loan (a long-term note) considering that they are two entirely different types of funding.
The key to determining if you can afford to factor is not to look just at the bottom-line cost, but to also look at how your company may improve its profits through invoice factoring. Consider unearned income and lost business opportunities due to your shortfall of cash flow.
It is infrequent that companies decide not to factor given that they could not afford to. Actually, in most cases, trucking firms decide to factor since they simply cannot afford NOT to.
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Every time your customers take 30 to 90 days to pay an invoice, you are funding their enterprise. They are making the most of the funds which is actually owed to you to run their company ... money you could be utilizing to pay your workers, pay for new machines or grow your business in various other ways.
Trucking factoring companies let you overcome the troubles made by your slow-to-pay customers by advancing to you a percentage of the invoiced amount. In this way you have funds right after your service or product has been delivered, not 45 days later.
That is unlike conventional types of funding, like bank loans and venture capital, factoring companies essentially look at the credit reliability of your customers, not you. In short, factors are likely to say '' of course'' when banks and investors say "no". Thus, even though you are a start-up company, invoice factoring can open up previously closed doors to possibilities and growth.
Great Credit Management Recommendations & Advice About Collecting Unpaid Sales Invoices
The survival and success of all small, medium and large trucking businesses is reliant upon receipt of payment from customers in regard of the product and services that the business offers and invoice for. It is not enough to get the sales order and supply the product if that sale can not be transformed into cash. Cash is the lifeblood of every business and if debtors don't pay outstanding invoices promptly it can spell calamity.
A lot of businesses are forced to offer credit terms to customers in order to continue to be very competitive and win orders but this has a detrimental effect upon their cash flow. The harm caused by non payment (bad debts) can also be substantial, and the longer the period of credit that is offered the more opportunity there is for the customer's conditions to change, and as a result payment to be delayed - in some cases permanently. The secret to success is good credit management and credit control.
There are two facets to profitable credit management. The first is taking care in choosing the businesses that you will provide credit terms. The second is to establish and employ an effective system of credit control methods to collect unpaid invoices.
EXTENDING CREDIT TERMS
The following tips may be helpful when deciding whether to offer credit terms to a customer:.
• Regularly confirm the exact trading name of the customer e.g. XYZ Limited; XYZ Plc; Mr X and Mr Y trading as XYZ; or Mr X trading as XYZ. Everyone these are uniquely unique and understanding the precise trading name could be critical in pursing a customer for payment through the legal system, should the need arise. The customer's headed stationery, business cards or brochures can usually be helpful in determining the exact name, although keep in mind they could be false.
• Offer the minimum credit period that will be competitively advantageous. The longer the credit period the more chance there is that the customer's financial circumstances may change.
• See to it that you have all the customer's contact particulars: addresses, phone numbers, fax numbers, mobile numbers, email addresses etc. Preferably, take the contact details of the prime movers. These may be extremely helpful if you need to call the customer regarding unpaid invoices down the road.
• Trade references may be helpful but most businesses will have at least a couple of customers that will swear by them.
• Credit information about customers can be purchased from a range of companies. This can give you insight into the financial position of a business. You can also ask the customer to provide you with financial information about their business.
• If a considerable amount of credit will be at stake think about visiting the customer to confirm that the address given exists. A great deal of facts about a business can often be gained just by checking out their offices and noticing what is going on e.g. are they swamped or is trade slack?
• Ensure that the customer has checked out your terms of trade and has accepted the credit terms that you have agreed to offer.
• Be sure you have knowledge of the process for forwarding your invoices and getting payment from the customer e.g. who do you send them to, when is their check run etc
. CREDIT CONTROL COLLECTING UNPAID SALES INVOICES.
The following recommendations and hints may be useful in making sure that you have an effective credit control process in place to collect unpaid sales invoices:.
• Learn the customer's payment process and procedures e.g. if you know the date that they carry out their monthly check run you can time your statement accordingly.
• Look into "pre-dunning", calling the customer before payment is due to confirm that your invoice has been received and that there are no causes for non payment.
• Start a systematic approach to providing statements, delivering chasing letters (which gradually become firmer) and calling the customers.
• Always keep copies of any correspondence and notes about telephone conversations. Confirm conversations in writing and preferably obtain the customer's written agreement to any payment guarantees.
• Try to call back and speak to the individuals concerned in lieu of leaving messages on answer machines.
• Consider other approaches of checking with debtors e.g. text messages to mobile numbers or email and fax.
• Be sure to remain calm but self-assertive on the telephone.
• Follow up immediately on any broken promises of payment.
• Shorten the process by emailing or faxing documents as opposed to posting.
• If required consider putting an end to further shipments once invoices are overdue.
The field of credit management and credit control is considerable and these are several key points to take into consideration. Lots of businesses have staff in-house that undertake this work for them but there are other options.
Trucking Factoring companies specialize in out-sourcing such services for their clients. They have specialist staff that can undertake the collection of your sales ledger for you and in many cases this could be achieved with cost savings. The cost of receivable financing should be weighed against the cost of recruiting specialist staff or dealing with the task yourself.
It is also feasible to receive bad debt safeguards (also called non recourse) which can eradicate the need for you to bother with which customers are credit worthy. The factoring company will look into the customers standing for you and they will grant a credit limit for each and every customer.
About The Trucking Industry
Trucking companies provide an essential service to the American economy by transporting large quantities of raw materials, works in process, and finished goods over land typically from manufacturing plants to retail distribution centers.
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Distinct from a bank loan, a trucking factoring contract is a customized agreement which takes into consideration the unique requirements of your company. That is quite different from the common banking record utilized to get a loan, in which is a typical arrangement based on the bank's requirements.
On top of that, plenty of invoice factoring companies do not have maximum boundaries. If you have very good, creditworthy customers and there are no legal hurdles (like liens, lawsuits or judgments), receivable factoring companies will finance all the receivables you can generate. This contrasts significantly with a usual bank situation, in which every loan has a maximum limit .
A new client receives preliminary approval in no more than 24 hours, and money in seven to ten days. By contrast, a loan application to a bank can take up to 30 to 60 days to cycle through to the loan review committee, with financing to come next in yet another 30 to 45 days.
In addition to speedy acknowledgment time, a factoring company does not lock up most of your business's assets (just the receivables) or incur debt. Firm ownership is not impacted, keeping your company as liquid as possible, while boosting your balance sheet and total financial position. On the other hand, banks will, in most cases, not only file a lien against (or hold as collateral) all your commercial assets, but also against your personal property ( consisting of your house, your dog, and your tv ).
With receivable financing, absolutely no added debt is acquired and the credit rating of your firm stays protected. Commonly a receivable financing contract can actually improve a firm's chances of restructuring long-term debt. Due to the fact that factoring brings an infusion of funds, the business can pay its bills on schedule and clear up other remaining credit commitments. Basically, this cash may make it possible for a business to "get its act together" in such a way that encourages banks and other financing bodies to look more agreeably on quite possibly restructuring debt or financing new property or construction. It's certainly not surprising for a very good client to " move onto" to bank finance after a period of "financial adjustment" while invoice factoring.
While the benefits of freight factoring over borrowing money are significant, the majority of the firms do not have the privilege of same accessibility to both methods of financing. Banks, with their regulatory controls and inherent inflexibility, do not make it very easy for many businesses to approach them for funding. Using a factoring company, on the other hand, is the purchase of an asset and, therefore, is not regulated by state of federal agencies.
Our company regularly hear business enterprise owners gripe about their banks, and the belief is typically the same: the only folks who can secure a loan are those who don't really need one!
The Initial Rules of the Costs of Truck Factoring Companies
It costs money. It costs more than bank money. Does it cost much more than investor money? Depends upon what amount of equity you relinquish to your investor, and many will need the lion's slice. Still let's stick to the costs of using a factoring company.
The Second Rule of the Costs of Factoring
It must be looked at as a transactional cost instead of interest charged for a time frame, for a many reasons.
Firstly, factoring companies must charge more for the money we advance because the length of time the money is outstanding is so short, usually 30 to 45 days. To charge bank rates on transactions of this short timeframe rewards only the client; the invoice factoring companies earns no cash, and actually, would lose his shirt.
In the final analysis, you as a business owner, have to ask yourself these two questions:.
1. Could the cash advanced make it possible for me to make a lot more (one way or another) than the fees charged?
2. Can a factoring company permit me to remain in operation?
It's the answer to these that should actually make your selection for you.
Additionally note that, for the factors that we're acquainted with, fees are negotiable. They are a versatile ( in good reason) part of the agreement, yet just remember, as stated, the transaction must work for everyone.
Our Company has been known to make a deal with customers that have special demands or situations, for example,: extremely low profit margins, high monthly sales with (shall we say) less-than-creditworthy customers, commitments of ensured monthly volume, capacity for impressive growth with the sector, etc. For this kind of clients, factoring companies have been known to agree to a high-volume discount schedule.
This is simply just one illustration of exactly how the schedules may possibly be manipulated to fit all concerned-- yet please be aware of, we factors are more willing to check out, discuss, speaking of, take into account, and think about all the possibilities, but they need to make sense, i.e., you've got to respect our right to earn a fair fee for the services rendered.
The rule is uncomplicated: the receivable financing companies negotiate a fee schedule that we know will help us both. If, throughout the course of these negotiations, you feel that you need to have (or are entitled to-- whatever) a lower rate than we're willing to give, or vice versa, we're both free to walk away from the table.
Prior to Proceeding, Feel Great About Your Receivable Financing Company.
Keep in mind that as your factoring company is checking into you and your clients, you should be checking into your factoring company. Demand references and very carefully read any agreements they may ask you to sign. Very good factoring services are present to assist you identify approaches to your cash flow complications whilst delivering top quality service and charging honest fees. As you examine the documents, ask questions! A great, reputable factor will appreciate the time that you are taking to learn about the process and talk with you to answer any questions you have.
Completing the Application.
Just one of the most essential papers that you will be asked to endorse is a Purchase and Sale Agreement, in addition described as a P&S Agreement. While a receivable factoring companies's due diligence process is far more "client-friendly" than the bank loan process, it may be really costly for the factor.
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I've owned 11 businesses and still own four of them and just in case you 'd like to find out one of them has an Letter Of Intent to Buy in hand and got to profitability taking advantage of FACTORING ONLY and is absolutely - as in absolutely - debt free. The reason why? They never had to borrow.
As to having used or not used freight factoring: With three of them and soon to become a fourth I have used trucking factoring companies. Why? You can capitalize the business without borrowing because invoice discounting is not borrowing. FYI: One of those businesses fulfilled orders it could only have dreamed of fulfilling had it not used receivables factoring. It's the one with the LOI in hand in fact.
Invoice factoring, like it or not, is actually a front end transaction that capitalizes a company without their having to borrow. It's not complicated and only dates back to the Eqyptians ... and still functions. About it not opening the flood gates? If you have a million dollars in invoices and can not borrow against them nor turn them to cash your business (my businesses were any way until I factored) are dead in the water until you get in some cash. If you have some alternative to that then God Bless you . An invoice is a non-performing asset unless you can turn it into cash but I am sure that I'll stand corrected.
QUESTION: If you as a business owner could hire a sales person and they would help you access sales you otherwise could not BUT you had to pay them a 2 % - 3 % - 5 % commission BUT they would boost your business 10 or 20 or 30 % would you employ that person? If you agree this then you are endorsing invoice discounting. It's not different than a credit card transaction. The business owner is selling the transaction to a third party to get the payment so how is factoring different from cc transactions?
Concerning the cost of invoice factoring? It looks as if that forfeiting 2 % on the front end of a credit card transaction is all right (on a daily basis and using your method in your reply incidentally that computes annually to 760 % by the way but we both know that this isn't true now don't we?). Why should a retailer accept cc processing? More business possibly? Much larger sales? And what are doing? They are selling the transaction to the credit card company. Yes? No? FYI: I offer that service too ... not rocket technology.
Invoice discounting can be be used by a company that is turning away sales and can not grow otherwise and note: The only time that they factor is when they are in need of working capital to complete an order that they would otherwise lose. It's like the sales commission: The only time you pay the salesman is when he sells i.e. it's a sale you either didn't have with the salesman or it's a sale you can't fulfill because your money if locked up in your invoices and you can't get it out.
That said it's pretty simple equation when you can not access liquidity:.
1.) Use factoring and surrender 3 % of the sale OR kiss off the sale and disappoint the customer and lose my profit margin ... 10 %? 20 %? 30 %?
2.) Use invoice factoring and give up 3 % of the sale OR dismiss the sale and disappoint the customer and lose my profit margin ... 10 %? 20 %? 30 %?
3.) Use factoring and give up 3 % OR dismiss the sale and disappoint the customer and lose my profit margin ... 10 %? 20 %? 30 %?
What part of being in business to maximize a profit am I missing?
Regarding the 24 % annually(or as above it would be 36 %) let's always remember that the owner of the business above got to complete transactions that he or she otherwise wouldn't have had the opportunity to. Not a lot different than the retailer that get's to close a sale with a customer comes in with their cc is it?
Also please explain this: A bank loans someone money ($100,000) at 9 % annually. A factoring firm provides $100,000 a month at a 2 % discount and carries out this 12 times during a year. Hmmmmnnn ... the bank gave $100K for 9 % BUT the factor actually delivered $1,200,000 for 24 % so which is the much better offer? The bank? It owns you: Invoices, inventory, equipment, your house and your signature ... the factoring firm has a right to your invoices: End. Which is more desirable?
In addition: Just what happens with the bank when you need $200,000 and you are only approved for $100K? If you have invoices the factoring firm funds you and you make the sales and reap the profit ... the bank says to you, "Let's see how you do over the upcoming year and revisit" or the infamous reply, "We don't like your collateral and your credit is weak" and the bottom line is that they don't have ability to take the risk or perform the work that a factoring firm does.
DO NOT FORGET: MONEY IS NOT LOANED IN A FACTORING TRANSACTION. If you can not accept or recognize that then there is no sense in conversing more on this ...
In closing: To tie in to the last statement that factoring at 2 % monthly in discounted interest costs 24 % in interest margins annually then I'll accept that but only if it can be agreed that a company that sells product with a 30 % monthly margin herewith makes a 360 % annual profit to which you will howl back "They're not the same" and to that you 'd be right: Invoice Factoring and borrowing money from a bank ... Are definitely not the same.
How Can a Trucking Company Benefit By Using Trucking Factoring Companies
Factoring Invoices: An Exceptional Funding Option for Trucking Businesses.
Trucking businesses, particularly those who have actually not been around for very long, will typically discover it hard to secure a loan. Banks are commonly reluctant to provide cash to businesses that don't have a great deal of earnings and assets. They likewise want proof of the viability of a business , specifically small ones, have been around for a particular period of time prior to they handing over any money. Because a medium-size business| commonly has a couple of money generating options when money needs occur. One choice offered, however typically neglected, is receivable Financing. This is an excellent way for a small business to get money.
Factoring invoices is useful for a number of reasons. It enables a business to raise money without acquiring brand-new financial obligation. While debt is in some cases is essential, the majority of businesses would choose to raise cash without obtaining debt. Debt is high-risk, and when it can not be paid back, possessions can be repossessed. If the debt is large enough, it might even require a company to go out of business.
Receivable Financing does not present these exact same problems. The cash paid to the company selling their invoices is protected by those invoices. The work typically has been done and the company is only waiting to get payment.
Trucking factoring companies are likewise a really excellent alternative since it is a way for a medium-size companyto get money truly quickly. More typically than not , when a company is in a money crunch, they do not have much time to figure things out. Their workers have to be paid, there are materials to get and leases to be paid. These things typically can not wait, at least not for a really long time. For that reason, the time factor is essential. A small trucking company will need to secure funds as soon as possible. Truck Factoring permits them to do that. The company's first experience with a factor may mean they wait 4-7 days to get paid. Nonetheless, after that it is likely they will receive cash in as little as 24 hours.
After all of the information have been organized, the factoring procedure is quite simple. A company will offer their invoices to a trucking factoring company, as much as 95 % of their value. For instance, a $100,000 invoice could get $90,000. This cash can be made use of for whatever the business desires to use itfor. After they have actually received cash for the invoices, the factoring company will get paid on the invoices. The original terms of the invoices apply. After they have been paid on them, the cash is returned to the business they bought them from, minus the factoring company's charge. It's as easy as that.
Trucking Factoring Companies offer their factoring services nationwide including the following states: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho State, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming.
All Sorts of Trucking Companies Use Factoring Services:
Oilfield Trucking Services