Cash flow is very important for the survival of any business. Traditionally, freight brokers or shippers hire a transport service provider to haul a load. The trucking company delivers the products to the concerned receiver and then bills the shippers or freight brokers. The transport company then waits for several weeks or even months to receive the payment. If the bills are not paid on time, it becomes difficult for the transport company to continue running its business efficiently.
Freight factoring helps transport companies to overcome their cash flow problems. What happens is freight accounts receivable financing companies purchase freight bills from trucking companies and advance cash to them within 24 hours, eliminating the need to wait for long periods of time to get paid.
Freight Factoring – How It Works
Freight brokers or shippers hire the services of a trucking company to haul a load. The carrier delivers the load at the appropriate address and then submits the bill to the freight bills factoring company and receives payment from them often within 24 hours. The freight bills factoring company receives the payment later from the freight broker or shipper.
Often, freight bills factoring companies offer recourse and non-recourse factoring options. In the case of the recourse factoring option, the carrier will have to take the credit risk. In the case of the non-recourse factoring option, the freight bills factoring company absorbs the loss if the freight bill is not paid due to a credit problem. This is a good option for trucking companies that operate 1 to 5 trucks for hauling goods of several companies and carriers whose credit scores are low.
Freight Factoring – Benefits
As freight factoring takes care of cash flow problems, trucking companies or carriers can focus more on their core activity. Freight bills factoring companies pay as much as 95 percent of the bill value in advance and often provide additional services such as customer credit checks, complete freight bills processing and collection services, and customized management reports. As the trucking companies can decide as to which freight bill is to be financed, they can be in complete control. Lastly, freight factoring enables carriers to obtain finance for running their business without creating any debt.