Many businesses can wait a long time – weeks or more – when trying to collect unpaid invoices. That can put a real crimp into operating cash flow. One business that can be particularly affected by this is the freight hauling firms, whose working capital is often stretched by intense competition, high fuel costs, and thin margins.
Factoring is a simple and elegant form of financing that has been around for ages. It works like this:
- A business has one or more outstanding customer invoices
- The business sells the invoices to a third party at a slight fraction of their full value
- The business no longer needs to collect on the invoice and is paid immediately by the third party for the sale.
- The third-party agent assumes the responsibility of collecting the full value of the receivables.
Freight Factoring in Particular
In the case of the trucking business, freight factoring involves the sale of the invoices on the haulage carried. These invoices are sold for an immediate infusion of working capital. In some cases, freight-hauling companies may have to wait up to 90 days or more to collect their receivables. This solves the problem for them and brings in much-needed working capital to continue operational activities.
Benefits of Freight Factoring
Trucking companies utilize freight factoring for a variety of beneficial reasons. Some of these include:
- Reducing “lumpy” cash flow
- Staying ahead of the competition
- Freeing up staff from collection responsibilities
- The ability to deploy capital for new growth opportunities
Connect with Array Financial
Here at Array Financial, we are literally in the business of helping other businesses succeed. We are experts in freight factoring and can answer any questions that you may have. In addition, we can suggest other forms of alternative financing that may be ideal for your business model. Call us today.
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